iSiiipiiiiiiiiiife 

BOOKKEEPING 
AND  ACCOUNTING 

A  COMPLETE  COURSE 


JOSEPH  J.KLEIN 


mmm 


D.APPLETON  AND  COMB^N^V 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

Microsoft  Corporation 


http://www.archive.org/details/bookkeepingaccouOOkleirich 


THE  COLLEGE  OF  THE  CITY  OF  NEW  YORK 

SERIES  IN 

COMMERCE,  ClYICS  AND  TECHNOLOGY 

A  SERIES  OF  TEXTS  BY  SPECIALISTS 

EDITED  BY 

FREDERICK  B.  ROBINSON,  A.M.,  Ph.D. 

ZhBKCTOB  OF  THE  DIVISION  OF   VoCATIONAIi   SUBJECTS  AND    CiVIC   AdMINISTBATION 


THE  COLLEGE  OF  THE  CITY  OF  NEW  YORK 
SERIES  IN  COMMERCE,  CIVICS  AND  TECHNOLOGY 


BOOKKEEPING  AND  ACCOUNTINa 


BY 

JOSEPH  J.  KLEIN,  Ph.D.,  C.P.A. 

f  THE  FIRM  OF  KLEIN.  HINDS  AND  FINKE.  CERTIFIED  PUBLIC  ACCOUNTANTS 

Author,  "  Elements  of  Accounting  ";  "Students'  Handbook  of  Accounting"; 

Co-AuTHOR,  "Principles  and  Methods  in  Commercial  Education"; 

Lbctukeb  on  Auditing  and  on  Accounting  Systems  at  thb 

COLLSGB  or  TBB  CiTT  OV  NBW  YoBK 


D.  IPPLETON  &  COMPANY 

NEW  YORK  LONDON 

1924 


COPTBIGHT,  1917,  BT 

D.  APPLETON  AND  COMPANY 


PmiTTKD  lit  THS  UNITED  fSTATKS  OV  AMBBIOA 


PREFACE 

Everyday  business  consists,  in  the  main,  of  buying  and  selling, 
receiving  and  disbursing  money,  issuing  and  redeeming  notes,  and  of 
other  similar  activities.  These  activities  are  known  as  transactions, 
and  it  is  the  function  of  bookkeeping  to  record  these  transactions 
clearly,  concisely  and  completely. 

The  modern  business  man  seeks  "  short  cuts."  He  has  no  S5Tiipathy 
with  circumlocution  in  speech  or  in  written  records.  To  him  bookkeep- 
ing is  simple.  It  is  merely  a  shorthand  transcript  of  the  occurrences  in 
which  he  has  played  an  important  part.  He  feels  that,  as  he  has 
learned,  without  prolonged  study,  to  understand  the  story  written  in  his 
books — a  story  which  to  him  is  so  simple — there  is  very  little  warrant 
for  long-drawn-out  courses  of  schooUng  to  train  his  clerks  and  assistants. 
And,  in  truth,  there  is  much  justification  for  his  point  of  view. 

Various  mechanical  bookkeeping  devices  are  on  the  market.  "  Book- 
keeping by  machinery,"  as  one  advertiser  styles  his  particular  product, 
has  secured  for  itself  a  firm  place  in  the  business  offices  of  America. 
But  no  one  should  be  led  to  believe  that  any  machine,  at  present  avail- 
able, has  made  bookkeeping  obsolete.  Machinery  reduces  the  routine 
bookkeeping  burden  to  a  minimum,  but  it  makes  no  attempt  to  sup- 
plant knowledge  of  principles  and  human  thought.  While  mechanical 
devices  have  made  easier  the  task  of  the  bookkeeper,  they  have  at  the 
same  time  served  to  accentuate  the  need  of  a  thorough  understanding 
of  the  science  of  accounts. 

The  author,  a  number  of  years  ago,  acquired  considerable  experience 
in  presenting  the  subject  of  bookkeeping  to  immature  students  as  well 
as  to  adults.  His  experience  led  him  irresistibly  to  the  conclusion  that 
the  subject  of  bookkeeping  may  be  so  simplified  that,  while  retaining 
all  its  necessary  comprehensiveness,  it  may,  nevertheless,  be  imparted 
to  willing  minds  within  a  period  of  time  much  shorter  than  that  hitherto 
devoted  to  it  in  the  school  curriculum.  He  believes  that  the  way  to 
shorten  the  period  of  school  study  has  been  clearly  indicated  in  the 
present  text.    The  methods  which  he  has  employed  are  not  imique; 

V 


577195^ 


vi  PREFACE 

they  consist  merely  of  those  characteristics  which  should  be  applicable 
to  every  business  textbook,  namely: 

(a)  Simplicity  of  presentation, 

(b)  Logical  development, 

(c)  Abundance  of  essential  drill. 

The  aim  of  the  present  text  has  thus  been  impKed.  It  is  to  reduce 
the  subject  of  bookkeeping  to  its  simplest  terms.  This  has  been 
accomplished  by  taking  up  each  subject  concretely  and  by  presenting 
one  topic  at  a  time.  Thus,  when  the  principles  of  bookkeeping  are  dis- 
cussed in  Part  I,  the  reader's  mind,  focused  only  upon  the  topic  dis- 
cussed, is  free  to  grapple  with  the  matter  under  presentation,  without 
being  diverted  from  its  goal  by  such  matters  as  a  treatment  of  the  busi- 
ness forms  employed,  or  the  solving  of  either  involved  or  lengthy 
arithmetical  problems.  In  this  connection,  the  account,  which  is  the 
fundamental  concept  in  technical  bookkeeping  practice,  is  emphasized 
and  stressed  and  made  the  basis  of  double  entry. 

Subsequent  divisions  of  the  book  are  made  the  medium  for  the 
introduction  of  labor-saving  devices,  and  for  specialized  phases  of 
bookkeeping  appHcable  to  partnerships,  corporations,  and  to  small  con- 
cerns employing  incomplete  or  single-entry  bookkeeping. 

It  will  be  found  that  "  Bookkeeping  and  Accounting "  is  well 
adapted  to  all  situations  requiring  a  bookkeeping  text.  Its  language  is 
simple  enough  to  be  understood  by  the  child  in  the  upper  grammar 
grades.  At  the  same  time,  it  is  not  so  simple  as  to  be  "  too  easy  " 
for  the  business  man,  or  the  college  or  the  university  student.  This 
statement  is  made  advisedly,  because  the  manuscript,  in  part,  has  suc- 
cessfully been  employed  as  the  basis  for  courses  in  the  grammar  grades 
of  pubUc  schools,  the  home  study  work  of  lawyers  preparing  for  examina- 
tion of  witnesses  in  interpreting  books  and  accounts,  lectures  to  business 
men  who  wished  to  understand  bookkeeping  rather  than  to  practice  it, 
and  for  high  school,  college  and  university  classes.     • 

The  most  recent  use  to  which  this  book  was  put  was  in  connection 
with  the  War  Emergency  Courses  in  Bookkeeping  and  Office  Practice 
offered  under  the  joint  auspices  of  the  Division  of  Vocational  Subjects 
and  Civic  Administration  of  the  College  of  the  City  of  New  York,  and 
the  Special  Committee  on  Emergency  Training  of  which  Felix  M.  War- 
burg, of  Kuhn,  Loeb  &  Company,  was  the  Honorary  Chairman.  Here, 
Miss  H.  B.  Lowenstein,  C.  P.  A.,  LL.B.,  used  the  text  as  the  basis  for 
the  outKne  of  lectures  for  the  Emergency  Courses  in  question,  and  a 
large  group  of  adult  students,  men  and  women,  were  taught  the  essen- 


PREFACE  tH 

tials  of  bookkeeping  in  nine  one-hour  lectures,  so  that  many  of  them  w^e 
enabled  to  take  the  places  of  those  bookkeepers  who  were  called  to  the 
defense  of  the  Nation. 

This  book  may  be  used  as  the  basic  text  in  the  presentation  of  book- 
keeping to  all  grades  of  students,  regardless  of  what  other  bookkeeping 
text  may  be  employed.  The  experience  of  the  author  convinces  him 
that,  while  some  pedagogic  advantage  may  be  derived  by  presenting 
bookkeeping  principles  through  the  medium  of  the  special  set  of  books, 
as,  for  example,  through  the  dry  goods  set,  or  the  grocery  or  department 
store  set,  much  time  is  saved  and  much  effort  conserved  by  presenting 
the  broader  aspects  of  the  subject  so  as  to  make  possible  a  universal 
application,  after  sufl&cient  concrete  drill  has  been  afforded.  The 
argimient  that  drill  on  special  sets  is  indispensable  is  not  valid.  It 
is  seldom  true  that  the  bookkeeper  may  be  transferred  from  the  office 
of  one  bank  to  another  and  apply  the  bookkeeping  methods  of  the  first 
to  the  second.  Many  business  men  are  of  the  opinion  that  a  thorough 
training  in  basic  principles  of  bookkeeping  better  fits  an  applicant  for 
service  in  a  particular  concern  than  does  the  more  speciaUzed  training 
and  experience  acquired  only  in  the  office  of  a  competitor. 

Where  schools  make  use  of  special  sets,  it  is  the  opinion  of  the 
author  that  they  should  be  given  to  advanced  students  only,  and  then 
with  due  regard  to  the  requirements  of  the  community  in  which  the 
school  is  situated.  This  is  particularly  true  because  a  student  who 
really  understands  bookkeeping  can  be  taught  in  a  very  few  minutes 
the  special  features  of  any  particular  set  of  books.  Such  special  sets 
have  not  been  included  in  this  text,  because  the  author  knows  that 
excellent  work  along  these  lines  has  been  done  by  others,  and  in  sufficient 
variety  for  present  needs.  Accordingly,  instructors  and  students  who 
wish  practice  in  any  particular  business  are  referred  to  the  textbooks 
now  on  the  market.  These  texts  should  be  employed  as  supplementary 
to  the  principles  treated  in  this  book. 

Part  VI  of  this  book  deals  with  business  practice,  and  Part  IX 
combines  business  practice  and  bookkeeping.  These  sections  may  be 
introduced,  at  the  option  of  the  instructor,  at  any  point  in  the  develop- 
ment of  the  subject.  The  reader  who  is  farmliar  with  bookkeeping 
texts  will  doubtless  be  pleased  at  the  number  of  drill  exercises  included. 
The  subject  of  bookkeeping,  as  treated  in  this  text,  might  be  under- 
stood without  the  solution  of  a  single  exercise.  The  nmnber  of  exer- 
cises actually  solved  by  the  student  should  depend  upon  circum- 
stances.    In  each  case,  the  decision  rests  with  the  instructor. 

The  pubUshers  have  produced  blanks  suitable  for  the  solution  of  th© 


viii  PREFACE 

various  exercises  contained  in  the  book.  These  blanks  are  designed  to 
save  time  in  the  preparation  of  forms  and  papers,  but  their  use  is  entirely 
optional. 

One  thought  that  has  been  deeply  impressed  upon  the  mind  of  the 
author  is  that  a  topic  thoroughly  understood  need  not  be  memorized. 
On  the  basis  of  this  conclusion,  the  appeal  throughout  this  text  has  been 
made  to  the  understanding  of  the  pupil,  rather  than  to  his  memory; 
therefore,  few  definitions,  and  fewer  rules  are  presented.  Definitions 
have,  in  the  main,  been  avoided  because  it  is  well  known  that  many 
persons,  especially  students,  are  prone  to  memorize  rather  than  to 
learn.  After  the  preliminary  stage  had  been  reached,  a  general  rule 
for  the  analysis  (journalizing  or  debiting  and  crediting)  of  transactions 
was  derived  and  rigorously  appHed. 

It  is  several  years  now,  since  the  original  manuscript,  from  which 
the  book  was  finally  prepared,  was  written.  Since  then  it  has  been 
variously  employed,  in  part  as  indicated  previously.  The  author,  despite 
the  stress  of  professional  engagements,  was  impelled  to  complete  the  task 
which  he  had  set  for  himself  years  ago,  because  those  who  used  the 
manuscript  were  kind  enough  to  lead  him  to  beheve  that  it  filled  a  real 
want.  It  is  thus  offered  to  the  pubUc  in  the  hope  that  the  mystery 
which,  in  the  minds  of  many,  surrounds  bookkeeping  will,  by  its  aid, 
rapidly  be  dispelled.  It  is  also  beheved  that  the  text  will  make  pos- 
sible the  curtailing  of  school  courses  in  bookkeeping,  so  that,  while 
those  who  wish  a  knowledge  of  bookkeeping  merely  for  its  own  sake 
may  acquire  it  without  much  expenditure  of  time,  those  who  wish  to 
pursue  advanced  phases  of  the  work  may  reach  the  comparatively 
advanced  study  of  Accounting  and  Auditing  in  a  much  shorter  time 
than  has  hitherto  been  possible. 

The  completion  of  the  task  is  due  to  the  cooperation  of  many  friends. 
My  professional  colleagues  and  staff,  especially  Mr.  George  Kent  Hinds, 
C.  P.  A.,  LL.B.,  and  Mr.  Myron  A.  Finke,  C.  P.  A.,  rendered  valuable 
service  throughout  the  production  of  the  text.  Miss  Anna  F.  Guilfoy, 
of  P.  S.  83,  Queens,  and  Miss  Eva  G.  Turner,  of  P.  S.  122,  Brooklyn, 
read  much  of  the  proofs,  solved  practically  all  of  the  exercises  and  pre- 
pared many  of  the  blanks.  Miss  Agnes  M.  Loughran,  of  Eastern  Dis- 
trict High  School,  and  Mr.  George  Kent  Hinds,  prepared  many  of  the 
exercises. 

Mr.  Warren  L.  Starkey,  Chairman  of  the  Commercial  Department, 
Jamaica  High  School;  Mr.  Harry  W.  Leyenberger,  Chairman  of  the 
Commercial  Department,  Bushwick  High  School;  Mr.  Gilbert  J. 
Raynor,  Chairman  of  the  Commercial  Department,  Commercial  High 


PREFACE  ix 

School;  and  Prof.  George  Monroe  Brett,  instructor  of  accounting  at  the 
College  of  the  City  of  New  York,  read  some  of  the  proofs  and  made  val- 
uable suggestions.  The  script  illustrations  were  prepared  by  Mr.  Wil- 
liam H.  Berger,  of  the  Commercial  Department  of  the  Washington  Irving 
High  School. 

My  secretary.  Miss  Ceha  Goldberg,  had  full  charge  of  the  production 
of  the  book,  and  much  more  than  can  be  expressed  in  words  is  due  to  her 
conscientious,  faithful  and  intelligent  efforts. 

Thanks  are  also  due  to  the  staff  of  my  publishers  for  their  pains- 
taking, intelligent  and  cordial  cooperation  under  very  trying  conditions. 

Joseph  J.  Klein. 
Nb^  Yobk. 


CONTENTS 

PART  I 
ELEMENTARY  BOOKKEEPING 

9XQM 

The  Basis— Rules  for  Debit  and  Credit— Double  Entry  Bookkeeping—"  T  " 
Account — Basic  Principle  of  Double  Entry — Expense  Account — 
Proprietor's  Account — Trial  Balance  of  Totals — Time  Transac- 
tions: Customers;  Creditors;  Customers  and  Creditors — Journal — 
Posting — Note  Transactions — Trial  Balance — Progress  of  the  Busi- 
ness (Profit  and  Loss  Statement) — Condition  of  the  Business  (State- 
ment of  Assets  and  Liabilities) — Formulae — Discount  on  Purchases — 
Discount  on  Sales — Discount  on  Notes — Single  Name  Paper — In- 
dorsement in  Blank  and  in  Full — Discounts — Return  of  Merchandise — 
Division  of  Merchandise  Account — Inventories — Profit  and  Loss 
Statement — Statement  of  Assets  and  Liabilities — Closing  the  Books — 
Balancing  Accounts — Closing  Journal  Entries — Miscellaneous  Ac- 
counts— Furniture  and  Fixtures  Account — Expense  Accounts — Sight 
Drafts — Shipments  and  Consignments — Account  Sales — Review  of 
Elementary  Bookkeeping — Summary — Exercises 1-151 

PART  II 

INTERMEDIATE  BOOKKEEPING 

Sales  Book — ^Purchase  Book — Cash  Book — General  Applicability  of  the 
Special  Journals — Proprietor's  Account — Sales  Account — Purchases 
Account — Payment  of  Notes — Discounted  Notes  Receivable — Dis- 
counting Notes  Payable — Returned  Sales  and  Returned  Purchases — 
Summary— Exercises 163-180 

PART  III 

ADVANCED  BOOKKEEPING 

Special  Columns  in  Books  of  Original  Entry — Expense  Column  on  Credit 
Side  of  Cash  Book — Extra  Column  on  Receipt  Side  of  Cash  Book  for 
Sales  Discount — Other  Special  Colunms  in  Cash  Book  (Notes  Pay- 
able)— Special  Columns  in  Sales  Book — Departmental  Columns — 
Special  Columns  in  Purchase  Book — Controlling  Accounts :  Accounts 
Receivable;  Accounts  Payable — Balance  Sheet — Income  and  Profit 
and  Loss  Statement — Elementary  Cost  Statistics — Working  Sheet — 
Formulae — Summary — Exercises 181-223 


xii  CONTENTS 

PART  IV 
PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING 

PAOB 

Articles  of  Copartnership — Analysis  of  Agreement — Opening  Entries — 
Schedules  of  Investment — Routine  Entries:  Several  Cases — Closing 
Entries — Interest  on  Investment — Division  of  Profits  —  Journal 
Transfers — Dissolution — Good  Will — ^Admission  of  Partner — Sum- 
mary—Exercises   225-275 

PART   V 

CORPORATION  BOOKKEEPING  AND  ACCOUNTING 

Limitation  of  Liability — Advantages  and  Disadvantages — Organization  of 
a  Corporation — Certificate  of  Incorporation — Capital  Stock — Direc- 
tors— Stockholders — Corporation  Books — Opening  Entries:  Old 
Books  to  Be  Continued;  New  Books  Opened;  Several  Cases — Sub- 
scribers and  Subscriptions — Stock  Ledger — Issued  Stock  vs.  Unissued 
and  Unsubscribed  Stock — Closing  the  Old  Books — Miscellaneous  Cor- 
poration Topics:  Common  Capital  Stock  vs.  Preferred  Capital  Stock; 
Cumulative  Preferred  Stock;  Stock  Certificate;  Dividends;  Transfer 
of  Stock — ^Valuation  Accounts:  Depreciation  and  Bad  Debts — Bad 
Debts  vs.  Reserve  for  Bad  Debts — Reserve  Funds — Dividends — Dis- 
solution: Several  Cases — Sunmiary — ^Exercises 277-358 

PART  VI 

BUSINESS  PRACTICE  AND  CUSTOMS 

Orders — Order  Form — Invoicing — Sample  Invoices — Terms  of  Sale — 
Dating  —  Receipts  —  Monthly  Statements —  Filing —  Remittances  — 
Shipping  Goods — ^Bills  of  Lading — Consignee  and  Consignor — ^Pay 
Rolls — Bank  Accounts — Check  Book — Pass  Book — Deposit  Slip — 
Drawing  Checks — ^Balancing  Check  Book — Balancing  Pass  Book — 
Vouchers — Reconciliation  Statement — Petty  Cash — Petty  Cash  Book 
— Petty  Cash  Voucher — Imprest  System — ^Bill  Books — Drafts — Sum- 
mary— Exercises 359-409 

PART  VII 

SINGLE  ENTRY 

Analysis  of  Double  Entry  and  Single  Entry  Results  of  Transactions — 
Single  Entry  Journal  Illustrated — Cash  Book — Proof  of  Posting — 
Summary  of  Ledger  Accounts — Statement  of  Assets  and  Liabilities — 
Statement  of  Profit — Changing  to  Double  Entry:  Old  Books  Con- 
tinued— Summary:  Rule  for  Debit  and  Credit  of  Single  Entry — 
Exercises 411-426 


CONTENTS  xiii 

PART  VIII 
MISCELLANEOUS  TOPICS 


PAQB 


Building  Contracts:  Entering  into  the  Contract;  Allowance  for  Extras; 
Payments  on  Account  of  Contract;  Subcontracting — Contingent 
Liabilities — Protest  and  Dishonor — Renewal  of  Notes — "  Kiting  " — 
Accounts  Receivable  Assigned — C.O.D.  Sales — Installment  Pur- 
chases— Labor-saving  Devices 427-440 

PART  IX 
BUSINESS  LABORATORY 

Special  Set  of  Exercises 441-449 

INDEX 451 


PART  I 
ELEMENTARY   BOOKKEEPING 

Part  I  is  intended  to  present  the  basic  principles  of 
double  entry  bookkeeping  so  that  the  reader  may  readily 
answer  two  alUimportant  questions: 

(a)  What  is  the  present  financial  condition  of  this 
business,  or  how  much  is  it  worth  today? 

(6)  How  is  this  business  getting  along,  or  what  progress 
is  it  making? 


1.  THE  BASIS 

Business,  as  it  is  popularly  understood,  comprises  the  commer- 
cial activities  of  the  community.  Bookkeeping  consists  of  recording 
the  financial  doings  or  acts  of  business  men.  These  acta  are  known 
as  transactions.  Simple  illustrations  of  transactions  are  buying, 
selling,  paying  a  debt,  paying  wages,  etc.  An  elementary  knowledge 
of  arithmetic  is  all  that  is  necessary  to  comprehend  the  subject  as  it 
is  about  to  be  presented. 

As  an  illustration  of  h*- w  simple  a  subject  bookkeeping  may  be 
made,  let  us  consider  the  following  record  taken  from  a  boy's  diary: 

May  15,  19 — ,  father  gave  me  $5.00  as  a  birthday  gift.    Received  $3.00  from 

mother  and  $2.50  from  Uncle  Tom. 
16, 19 — ,  bought  a  pair  of  skates  for  $1.80,  and  paid  $.50  to  see  the 

baseball  game. 
17,  19 — ,  earned  $.25  for  delivering  a  package.    Sold  my  skates  to  Bob 

Sommer  for  $1.25.    Bought  a  box  kite  for  $.35. 

If  the  boy  in  question  wished  to  test  the  correctness  of  the  amount 
of  money  he  had  left,  he  might  proceed  as  follows: 

I  received:  I  spent: 

$5.00  $1.80 

3.00  .50 

2.50  .35 

.25  

J  25  ^2 .  65  Total  amount  spent 


$12.00  Total  amount  received 

Total  receipts  $12.00 

Total  expenditures  2 ,  65 

Balance  $9.35 

The  bookkeeper  would  arrange  these  figures  in  a  similar  way, 

but  he  would  employ  specially  ruled  paper.    His  record  is  herewith 
shown: 


BOOKKEEPING  AND  ACCOUNTING 


Cash 


19— 

19— 

May 

15 
15 
15 
17 
17 

5 
3 
2 

1 

00 
00 
50 
25 
25 

May 

16 
16 
17 

1 

80 
50 
35 

This  record  of  money  received  and  spent — this  account  of  cash — 
is  known  as  a  Cash  account.  Note  that,  as  in  the  first  case,  the  receipts 
are  grouped  in  the  first  money  column,  the  payments  in  the  second. 
Note,  also,  that  the  term  ''Cash"  is  used  as  a  heading. 

Where  were  the  receipts  placed?  In  the  first  or  left-hand  column. 
The  bookkeeper  would  say  in  the  debit  column,  and  for  our  purpose 
debit  and  left-hand  are  synonymous.  Similarly,  the  bookkeeper  refers 
to  the  other  column  as  the  credit  column.  Dr.  is  the  abbreviation  for 
debit,  and  Cr,  for  credit.  We  say  that  Cash  account  is  debited  for 
$5.00,  $3.00,  $2.50,  $.25  and  $1.25,  respectively.  Similarly  Cash 
account  is  credited  for  $1.80,  $.50  and  $.35,  respectively. 

Inasmuch  as  Cash  account  is  universally  debited  for  money  received 
and  credited  for  money  spent,  it  is  well  to  become  familiar  with  the 
following  rules  or  agreements: 

la.  Debit  Cash  Account  Whenever  Our  Business  Receives  Money. 
Ila.  Credit  Cash  Account  Whenever  Our  Business  Pays  Money. 

The  student  should  now  "enter"  in  the  Cash  accoimt  the  proper 
debits  and  credits  for  the  following  fist  of  transactions: 


June 


Sold  10  bbls.  apples  @  $4.00,  for  cash 

Sold  10  bbls.  apples  @  $5.00,  for  cash 

Bot.  20  bbls.  potatoes  @  $3.00,  for  cash 

Sold  5  bbls.  potatoes  @  $4.00,  and  5  bbls.  @  $5.00 

Paid  clerk's  salary,  $10.00 

Sold  10  bbls.  potatoes  @  $4.50 

Compare  your  solution  with  the  following: 

Cash 


19— 

19— 

June 

1 

40 

00 

June 

4 

60 

00 

3 

50 

00 

8 

10 

00 

7 

45 

00 

10 

45 

00 

ELEMENTARY  BOOKKEEPING  f 

Questions 

1.  What  is  a  Cash  account?    Its  function? 

2.  What  items  are  entered  on  the  debit  side?    On  the  credit  side? 

3.  What  does  the  balance  indicate? 

4.  Can  the  credit  side  of  Cash  account  be  greater  than  the  debit  side? 
Explain. 

Exercise  lA.    Drill 

1.  Received  $50.00  and  $200.00.    Spent  $30.00  and  $30.00.    Balance? 

2.  A  Cash  account  is  debited  for  $1,200.00  and  credited  for  $850.00. 
Balance? 

3.  The  debits  in  a  Cash  account  equal  $1,800.00.  The  balance  is  $300.00, 
Total  of  the  credits? 

4.  Cash  debits,  Feb.  1  to  Feb.  6,  $325.00;  Feb.  8  to  Feb.  13,  $225.00; 
Feb.  15  to  Feb.  20,  $350.00;  total  debits,  $1,200.00.  Debits  last  week  of 
February? 

5.  Total  cash  credits  for  the  month  were  $1,800.00.  During  the  first 
week  spent  $250.00;  $500.00  during  the  second  week;  $350.00  during  the 
last  week.    How  much  was  credited  during  the  rest  of  the  month? 

6.  What  is  the  difference  between  "Cash  received  $1,000.00"  and  "Cash 
debited  $1,000.00"?  What  is  the  difference  between  "Cash  paid  out  $600.00" 
and  "Cash  credited  $600.00"? 

Exercise  IB  i 

Show  the  Cash  account  resulting  from  the  following  transactions  and  deter* 
mine  the  balance  of  cash  on  hand: 


19— 

[arch    1 

Reed,  from  Smith 

$  300.00 

3 

Reed,  from  Brown 

800.00 

4 

Reed,  from  Thompson 

600.00 

4 

Smith  gave  us 

600.00 

5 

Lawson  gave  us 

360.00 

7 

Brown  gave  us 

lyooo.oo 

9 

Gave  Jones 

650,00 

9 

Gave  Sanders 

700.00 

12 

Paid  Collar 

276.00 

13 

Paid  Jones 

325.00 

14 

Reed,  from  Kahn 

150.00 

14 

Reed,  from  Hinds 

65.00 

15 

Paid  Collins 

1,000.00 

^  For  additional  exercises,  see  end  of  Part  I. 


BOOKKEEPING  AND  ACCOUNTING 


2.  DOUBLE  ENTRY  BOOKKEEPING 

An  examination  of  business  transactions  reveals  the  fact  that 
throughout  the  economic  world  there  exists  an  equivalence  of  exchanges. 
Accordingly,  if  we  buy  a  pair  of  shoes  for  $5.00,  we  part  with  money, 
but  receive  in  return  an  equivalent  value;  or,  if  we  sell  a  book  for 
$1.50,  we  give  a  book  and  receive  money;  or  finally,  if  we  employ  a 
clerk  we  obtain  services  and  give  money.  As  it  is  the  function  of 
the  bookkeeper  to  record  all  business  transactions,  it  must  be  clear 
that  the  Cash  account  alone  is  not  sufficient.  It  records  the  money 
received  and  spent,  but  it  fails  to  account  for  the  sources  of  the  re- 
ceipts and  the  causes  for  the  disbursements.  We  are  about  to  learn 
how  to  complete  the  partial  record  already  presented. 

Consider  this  transaction: 

February  1,  sold  10  bbls.  flour  @  $8.00,  for  cash. 

We  know  that  Cash  account  should  be  debited: 
Cash  2  But  how  may  we   show  that  we  parted  with 

floiu?    Just  as  we  keep  an  account  of  money  or 

$80.00  cash,   so   we   also   keep    an   account   of   flour   or 

other   merchandise.     This   account   is    called    the 
Merchandise    account,^   and,    before   an    entry   is 
made  therein,  appears  as  follows: 

Merchandise  There  can  be  only  two  kinds  of  entries  in  any 

account — a  debit  or  a  credit — and  we  must  decide 

whether  to  debit  or  credit  the  Merchandise  account 
as  a  result  of  selHng  ten  barrels  of  flour.  If  we 
agree  that  Cash  account  should  be  debited  to  in- 
dicate the  receipt  of  money,  then  it  is  quite  natural  to  agree  that  a 
credit  to  Merchandise  account  will  indicate  the  parting  with  goods 
or  merchandise.    The  entries  for  the  entire  transaction  are: 


Cash 


Merchandise 


$80.00 


$80.00 


'For  purposes  of  illustration  it  is  not  necessary  to  use  the  regular  sheets  of 
ruled  paper.  A  so-called  "T"  account,  properly  headed  or  labeled,  is  suflBcient 
to  indicate  the  division  into  debits  and  credits. 

» We  might  employ  a  Flour  account  for  flour,  a  Shoe  account  for  shoes,  etc., 
but  it  is  not  customary  in  elementary  bookkeeping  to  keep  separate  accoimts  for 
«ach  kind  of  goods. 


ELEMENTARY  BOOKKEEPING  I 

Now  consider  this  transaction: 

February  1,  bought  10  bbls.  flour  @  $7.00,  for  cash. 

We  wish  to  call  the  attention  of  the  student  to  a  device  which 
has  proved  very  valuable  in  teaching  bookkeeping.  If  you  can  pic- 
ture or  visualize  what  transpired  in  a  given  transaction,  that  is,  if 
you  really  "see"  the  receiving  and  giving  in  any  case,  the  solution 
is  practically  determined.  To  do  so,  imagine  that  you  are  viewing 
the  transaction  on  a  motion  picture  screen.  In  this  case,  you  should 
see  the  merchandise  received  by  us  and  the  money  paid  by  us.  But 
for  the  money  paid  by  us,  we  know  that  we  must  credit  Cash  account. 
What  shall  we  do  about  the  receipt  of  the  flour?  Do  you  not  approve 
of  a  debit  to  Merchandise  account?    The  solution  then  is: 


Cash 


Merchandise 


$70.00 


$70.00 


If  we  consider  the  two  foregoing  transactions  as  having  occurred  in 
the  same  business,  the  entries  to  date  would  be: 


Cash 


Merchandise 


$80.00 


$70.00 


$70.00 


$80.00 


Employing  a  Cash  account  and  a  Merchandise  account,  enter  the 
following  transactions: 

April      1  Bot.  25  bbls.  flour  @  $6.00,  for  cash 

2  Bot.  20  bbls.  potatoes  @  $3.50,  for  cash 

4  Sold  10  bbls.  potatoes  @  $5.00,  for  cash 

5  Sold  10  bbls.  flour  @  $5.00,  for  cash 

7  Bot.  15  bbls.  potatoes  @  $4.00  and  10  bbls.  @  $6.00,  for  cash 

9  Sold  20  bbls.  potatoes  @  $5.00,  for  cash 

10  Sold  20  bbls.  flour  @  $8.00,  for  cash 

12  Sold  5  bbls.  potatoes  @  $5.00  and  5  bbls.  flour  @  $8.00,  for  cash 


BOOKKEEPING  AND  ACCOUNTING 


By  aid  of  the  motion  picture  device,  we  are  enabled  to  "see"  that: 
April 


1 

we  reed. 

mdse. 

$150.00; 

and  gave  cash 

$150.00 

2 

we  reed. 

mdse. 

70.00; 

and  gave  cash 

70.00 

4 

we  reed. 

cash 

50.00; 

and  gave  mdse. 

50.00 

5 

we  reed. 

cash 

50.00; 

and  gave  mdse. 

50.00 

7 

we  reed. 

mdse. 

120.00; 

and  gave  cash 

120.00 

9 

we  reed. 

cash 

100.00; 

and  gave  mdse. 

100.00 

10 

we  reed. 

cash 

160.00; 

and  gave  mdse. 

160.00 

12 

we  reed. 

cash 

65.00; 

and  gave  mdse. 

65.00 

Associating  what  is  received  with  debit  and  what  is  given  with 
credit,  the  student  should  enter  the  foregoing  transactions  on  so- 
called  ledger  sheets,  and  then  compare  his  solution  with  the  following: 


&;LdjLy^ 


S<\oo 
/  o 

/  (e  (\00 


/  2-c  e?c 


//L^''i^i>^^i!^^?^-^^^-cd^^ 


"W- 


a^friU^ 


/zc 


Z^^'^M 


/  acoc 

/6c  oc 

£<S  oc 


Observations, 

ip!) 


(a'O 


(Transaction  of  April  4) — We  debited  Cash  account  for  $50.00 
and  at  the  same  time  credited  another  account  (in  this  case 
Merchandise  account)  for  $50.00. 

(Transaction  of  April  9) — We  debited  Cash  account  for  $100.00 
and  at  the  same  time  credited  another  account  for  $100.00. 


ELEMENTARY  BOOKKEEPING  9 

(6')  (Transaction  of  April  1) — We  credited  Cash  account  for  $150.00 
and  at  the  same  time  debited  another  account  (in  this  case 
Merchandise  account)  for  $150.00. 

(6")  (Transaction  of  April  7) — We  credited  Cash  account  for  $120.00 
and  at  the  same  time  debited  another  account  for  $120.00. 

Conclusions. — 

lA.  Debit  Cash  Account  Whenever  Our  Business  Receives  Money, 
IB.  At  The  Same  Time,  Credit  Another  Account  For  The  Same 
Amount. 

HA.  Credit  Cash  Account  Whenever  Our  Business  Gives  Money. 
IIB.  At  The  Same  Time,  Debit  Another  Account  For  The  Same 
Amoimt. 

We  are  thus  in  a  position  to  see  that  each  transaction  results  in 
a  debit  of  a  certain  amount  and  in  a  corresponding  credit  of  the  same 
amount.  Now  why  should  this  be  so?  Simply  because  bookkeeping 
records  business  transactions;  every  business  transaction,  as  we  saw, 
is  an  exchange  of  equal  values;  the  record,  therefore,  should  show 
the  equal  values  received  and  given.  Such  a  complete  record  leads 
to  the  most  fundamental  principles  of  our  subject: 

Every  Transaction  Must  Result  In  Debits  And  Credits  Of  Equal 
Amount. 

Questions 

1.  Define  the  Merchandise  account. 

2.  On  which  side  are  sales  entered?    Purchases? 

3.  How  does  the  Merchandise  account  differ  from  the  Cash  account? 

4.  Why  do  we  call  our  subject  double  entry  bookkkeeping? 

5.  What  is  the  fundamental  principle  of  double  entry  bookkeeping? 

Exercise  2A.     Drill 

1.  Orally  indicate  the  debits  and  credits  in  the  following  transactions: 

o.  Bot.  oats  for  cash  (S500.00) 
6.  Bot.  flour  for  cash  ($800.00) 

c.  Sold  salt  for  cash  ($350.00) 

d.  Sold  wheat  for  cash  ($1,000.00) 

e.  Bot.  salt  for  cash  ($250.00) 
/.  Sold  flour  for  cash  ($700.00) 
g.  Bot.  flour  for  cash  ($1,000.00) 
h.  Sold  oats  for  cash  ($500.00) 


10  BOOKKEEPING  AND  ACCOUNTING 

2.  For  the  above  transactions,  fill  in  a  form  ruled  as  follows: 


Debits 

What  was  received: 

Credits 

What  was  given: 

a 

Mdse. 

Cash 

b 

c 

Cash 

Mdse. 

d 

e 

f 

9 

h 

3.  Establish  "T"  ^accounts  resulting  from  the  transactions  given  above: 
Merchandise  Cash 


4.  Using  Merchandise  account  and  Cash  account,  enter  the  following  items 
from  dictation: 

Cash,  debit,  $300.00;  debit  Cash  $500.00;  Mdse.,  credit,  $400.00;  charge  « 
Cash  $500.00;  credit  Cash  $250.00;  credit  Cash  $350.00;  charge  Cash  $1,000.00, 
charge  Mdse.  $500.00;  credit  Mdse.  $320.00;  credit  Mdse.  $250.00;  credit 
Cash  $200.00;  charge  Cash  $500.00;  debit  Cash  $600.00. 

Exercise  2B « 

Properly  enter  the  following  transactions: 


June 


Bot.  100  bbls.  flour  @  $7.50,  for  cash 
Bot.  50  bu.  oats  @  $1.10,  for  cash 
Sold  10  bbte.  flour  @  $8.50,  for  cash 
Sold  10  bu.  oats  @  $1.40,  for  cash 
Sold  25  bbls.  flour  @  $9.00,  for  cash 
Bot.  50  bu.  wheat  @  $1.80,  for  cash 
Sold  25  bu.  wheat  @  $2.50,  for  cash 
Bot.  75  bbls.  flour  @  $7.00,  for  cash 
Sold  50  bbls.  flour  @  $9.00,  for  cash 
Sold  25  bbls.  flour  @  $9.50,  for  cash 
Bot.  100  bu.  oats  @  $1.25,  for  cash 

*  See  footnote  page  6. 
'  "Charge"  and  "debit"  are  synonymous  terms 

•  For  additional  exercises,  see  end  of  Part  I. 


8 

9 

10 

11 

12 


(See  page  20.) 


ELEMENTARY  BOOKKEEPING 


11 


3.  EXPENSE  ACCOUNT 

Consider  the  following  transactions: 

March  1  Bot.  10  bbls.  apples  @  $4.00,  for  cash 

2  Bot.  books  and  stationery  for  office  use,  cash,  $10.00 

3  Bot.  postage  stamps,  $2.00 

4  Paid  rent  of  store  for  month,  in  cash,  $50.00 

In  each  case  the  business  spent  money,  so  Cash  account  is  to  be 
credited.  What  are  the  corresponding  debits?  Let  us  ascertain  what 
was  received  in  each  case : 

On  the  1st,  apples  (mdse.) 
On  the  2nd,  books,  etc. 
On  the  3rd,  stamps 
On  the  4th,  use  of  premises 

Observations. — 

1.  We  pay  money /or  goods  to  he  sold  (mdse.). 

2.  We  pay  money /or  goods  to  be  consumed  (books  and  stamps)  J 

3.  We  pay  money /or  services  (use  of  store). 

Conclusions. — 

1.  Goods  bought  (received)  to  he  sold  again  are  called  merchandise. 

2.  Goods  bought  (received)  to  he  consumed  are  called  expenses. 

3.  Services  acquired,   as  rent  (use  of  premises),  labor,  telephone 

use,  etc.,  are  called  expenses. 

Practical  Application. — Expense  account,  instead  of  Merchandise 
account,  is  to  be  debited  for  receipts  such  as  those  included  under 
2  and  3  above. 

The  solution  for  the  four  transactions  of  March  is: 


Merchandise 

Cash 

Ezpe 

'nse 

$40.00 

$40.00 

10.00 

2.00 

60.00 

$10.00 

2.00 

50.00 

'Stamps  are  services  rather  than  "goods."  Stamps  provide  the  service  of 
the  government  in  making  deliveries  of  messages  and  merchandise.  But  the 
principle  is  true.  Incidentally,  economists  who  agree  with  Professor  Frank  A. 
Fetter's  "usufruct"  theory  need  not  differentiate  between  "goods"  and  "services." 


12  BOOKKEEPING  AND  ACCOUNTING 

Questions 

1.  Define  Expense  account. 

2.  Differentiate  between  Expense  account  and  Merchandise  account. 

3.  Apply  your  test  (question  2)  to:  (a)  oats,  (6)  coal,  (c)  stationery. 

4.  Why  might  one  firm  call  a  purchase  of  oats  "merchandise,"  but  another 
concern  call  such  a  purchase  "expense"? 

5.  If  Expense  account  is  debited  when  stationery  is  bought,  what  entry 
should  be  made  if  some  stationery  is  returned? 

Exercise  3A.    Drill 

1.  Orally  indicate  the  debits  and  credits  resulting  from  the  following  trans- 
actions: 

a.  Paid  rent  of  store  ($125.00) 

b.  Paid  salaries  for  the  week  ($63.00) 

c.  Bot.  mdse.  ($2,700.00) 

d.  Sold  mdse.  ($1,800.00) 

e.  Bot.  stationery  for  office  use  ($16.00) 
/.  Bot.  postal  cards  and  stamps  ($4.50) 
g.  Paid  telephone  bill  ($6.75) 

h.  Printing  bill  reed,  and  paid  ($13.20) 

I.  Retd.   some  stationery  on  account  of  defects,   and  received  cash 

therefor  ($2.50) 
j.  Bot.  books  for  use  of  salesmen  ($18.00) 
k.  Retd.  the  books  bot.  for  salesmen,  receiving  back  the  cost  of  same, 

($18.00) 

2.  Fill  in  a  form  similar  to  that  required  by  Problem  2,  Exercise  2^4, 
page  10. 

3.  Establish  "T"  accounts  properly  to  record  the  transactions  given  above. 

4.  Using  properly  labeled  "T"  accounts,  enter  the  following  items  from 
dictation: 

Debit  Cash  $1,000.00;  charge  Mdse.  $350.00;  credit  Mdse.  $180.00; 
debit  Expense  $85.00;  Expense  debited,  $37.50;  charge  Expense  $30.00; 
charge  Expense  $41.25;  debit  Cash  $250.00;  credit  Cash  $72.00;  Cash  credited 
$39.00;  debit  Mdse.  $175.00;  charge  Mdse.  $250.00;  charge  Cash  $1,500.00; 
debit  Expense  $145.00;  credit  Expense  $18.00;  Expense  credited  $5.75; 
Expense  debit,  $150.00;  Cash  debited  $840.00;  Cash  charged,  $550.00;  credit 
Cash  $200.00. 

5.  How  much  was  actually  spent  for  expenses  as  shown  in  your  solution 
of  Problem  4,  above?  How  much  was  originally  spent?  How  much  was 
subsequently  returned? 

6.  How  much  money  was  received  in  Problem  4^  above?  How  much  waa 
spent?    Balance? 


ELEMENTARY  BOOKKEEPING  13 

Exercise  3B » 
Enter  the  following  transactions  in  proper  form: 

May    1  Paid  rent  of  store,  cash,  $50.00 

3  Bot.  books  and  stationery  for  office  use,  cash,  $15.00 

4  Bot.  100  bbls.  sugar  @  $7.00  and  200  bbls.  flour  @  $6.00,  for  cash 
6  Sold  100  bbls.  flour  @  $7.50,  for  cash 

8  Paid  clerk's  salary,  $12.00 

12  Paid  for  window  cleaning,  $1.00,  tip  to  janitor  $2.00  cash 

14  Sold  100  bbls.  sugar  @  $9.00  for  cash 

15  Paid  telephone  bill,  $10.00,  in  cash 
15  Paid  clerk's  salary,  cash,  $12.00 

15    Sold  100  bbls.  flour,  @  $8.00,  for  cash 


4.  PROPRIETOR'S  ACCOUNT 

Consider  the  following  transaction: 

June  1,  S.  S.  Luke  began  the  flour  and  grain  business  by  investing  cash, 
$2,000.00. 

You,  as  the  bookkeeper,  would  have  to  decide  upon  the  proper 
debits  and  credits.  What  did  the  business  receive?  It  received  money 
or  cash.  Hence,  Cash  account  must  be  debited  for  $2,000.00.  But 
what  did  the  business  give  in  return  ?  Really  nothing,  perhaps,  but 
in  order  to  make  the  general  rules  or  agreements  for  debiting  and 
crediting  of  universal  apphcation,  let  us  recognize  that  the  business 
gave  a  claim  against  itself.  This  claim  is  to  express  the  fact  that 
the  proprietor  has  a  right  to  expect  that  the  money  which  he  invested 
in  the  business  wdll  some  day  be  returned  to  him,  if  not  lost.  What 
title  or  name  shall  be  applied  to  this  claim?  Surely,  none  better  than 
*'S.  S.  Luke,"  or  "S.  S.  Luke,  Proprietor,"  or  "S.  S.  Luke,  Capital," 
or  "  S.  S.  Luke,  Investment,"  suggests  itself. 

The  decision  to  credit  Mr.  Luke's  account  may  be  arrived  at  more 
easily,  but  perhaps  not  in  quite  as  satisfactory  a  manner  when  regarded 
from  the  point  of  view  of  universal  principles.  We  know  that  Cash 
account  must  be  debited,  because  the  business  received  money.  We 
also  know  that  some  other  account  must  be  credited  at  the  same 
time.     This  "  other  account  "  must  be  given  some  appropriate  name 

■  For  additional  exercises,  see  end  of  Part  I. 


14 


BOOKKEEPING  AND  ACCOUNTING 


or  style.    Surely,  *'S.  S.  Luke,  Investment "  is  as  fitting  as  any  which 
can  be  suggested.    The  entry  becomes: 


Cash 


S.  S.  Luke,  Investment 


$2,000.00 


$2,000.00 


If,  now,  the  proprietor  makes  an  additional  investment  of  $500.00 
in  cash.  Cash  account  is  debited  and  the  owner's  account  is  credited. 
The  accounts  at  this  point  appear  as  follows : 


Cash 


S.  S.  Luke,  Investment 


$2,000.00 
500.00 


$2,000.00 
500.00 


Should  the  proprietor  withdraw  $50.00  for  his  personal  use,  what 
entry  is  required?  The  "motion  pictures''  reveal  that  the  business 
has  given  $50.00  in  cash,  and  that  the  business  has  received  back  a 
part  of  Mr.  Luke's  claim  against  it.  Accordingly,  S.  S.  Luke,  In\est- 
ment  account  should  be  debited  and  Cash  account  credited.  Assume, 
further,  that  the  proprietor  took  goods  amounting  to  $10.00  in  value, 
for  his  personal  use.  In  such  a  case  Merchandise  account  should 
be  credited  (the  business  gave  goods),  and  the  proprietor's  account 
should  be  debited  (the  business  received  back  a  part  of  the  propri- 
etor's claim  against  it). 

The  four  transactions  result  in: 


Cash 


S.  S.  Luke,  Investment 


Merchandise 


$2,000.00 
500.00 


$50.00 


$50.00 
10.00 


$2,000.00 
500.00 


$10.00 


The  proprietor's  account  now  shows  that  his  original  investment 
was  $2,000.00,  his  additional  investment  $500.00,  his  total  investment 
$2,500.00,  his  withdrawals,  $60.00,  and  his  net  investment,  $2,440.00. 

Observations. — 

1.  Cash  account  is  debited  for  money  received  by  the  business. 

2.  Merchandise  accoimt  is  debited  for  merchandise  received  by  the 

business. 


ELEMENTARY  BOOKKEEPING  15 

3.  Expense  account  is  debited  for  goods  to  be  consumed  and  for 

services  received  by  the  business. 

4.  Proprietor's  account  is  debited  for  all  claims  against  him  received 

by  the  business. 

Conclusion. — 

Appropriate  Accounts  Are  Debited  Whenever  Money,  Goods,  Claims, 
Etc.,  Are  Received  By  The  Business. 

Observations. — 

1.  Cash  account  is  credited  for  money  spent  or  given  by  the  business. 

2.  Merchandise  account  is  credited  for  goods  given  or  sold  by  the 

business. 

3.  Proprietor's  accoimt  is  credited  for  claims  given  him  against  the 

business. 

Conclusion. — 

Appropriate  Accounts  Are  Credited  Whenever  Money,  Goods,  Claims, 
Etc.,  Are  Given  By  The  Business. 


Questions 

1.  Why  should  an  account  with  the  proprietor  be  kept? 

2.  What  is  entered  on  the  debit  side?  On  the  credit  side?  What  does 
the  balance  denote? 

3.  Give  a  general  rule  for  debiting  accounts.  Now  give  one  for  crediting 
accounts. 

4.  What  is  the  difference  between  the  account  with  the  Proprietor  and 
the  one  with  Cash? 

5.  Do  you  consider  the  following  an  acceptable  definition  of  an  account? 
"An  account  is  a  collection  of  items,  systematically  arranged,  each  one  of 
which  refers  to  the  same  person  or  thing,  and  all  gathered  together  under  an 
appropriate  title  of  such  person  or  thing."  Tell  why  you  do  or  do  not  approve 
of  it. 

6.  Gave  our  printer  1  bbl.  of  potatoes  for  some  printing  which  he  billed 
us  at  $6.00.  What  was  received  by  us?  What  account  shoiild  be  debited? 
What  was  given  by  us?    What  account  should  therefore  be  credited? 

7.  Show  the  general  rule  for  debiting  and  crediting  accounts  applied  to 
the  proprietor's  account. 


16  BOOKKEEPING  AND  ACCOUNTING 

Exercise  4A.    Drill 

1.  Orally  indicate  the  debits  and  credits  resulting  from  the  following 
transactions: 

a.  Thos.  A.  Browne  commenced  business  by  investing  cash  ($5,000.00) 
h.  Mr.  Browne  invested  more  money  ($1,000.00) 

c.  Paid  rent  of  shop  ($175.00) 

d.  Paid  various  expenses  ($106.00) 

c.  Mr.  Browne  drew  cash  from  business  for  his  own  use  ($200.00) 

/.  Mr.  Browne  drew  more  money  for  his  personal  use  ($50.00) 

g.  Bot.  mdse.  ($2,500.00) 

h.  Sold  mdse.  ($2,000.00) 

i.  Mr.  Browne  took  some  mdse.  for  his  own  use  ($25.00) 

j.  Mr.  Browne  made  an  additional  investment  ($2,000.00) 

k.  Mr.  Browne  sent  some  mdse.  home  for  his  family  ($18.00) 

I.  Paid  salaries  and  wages  ($195.00) 

m.  Bot.  mdse.  ($500.00) 

2.  Fill  in  a  form  similar  to  that  required  for  Problem  2,  Exercise  2A,  page  10. 

3.  Set  up  "T"  accounts  for  the  transactions  of  Problem  1,  above. 

4.  How  much  did  Mr.  Browne  invest  originally?  How  much  subsequently? 
His  total  investment?  His  first  withdrawal?  His  total  withdrawal?  His 
net  investment? 

Exercise  4B » 

Properly  enter  the  following  transactions: 

Dec.    1  S.  S.  Luke  i°  began  business  by  investing  cash,  $2,500.00 

2  Bot.  100  bbls.  potatoes  @  $4.00  and  200  bbls.  apples  @  $5.00,  cash 

3  Paid  rent  $50.00,  for  printing  $18.00  and  for  signs  $12.00,  cash 

4  Mr.  Luke  invested  an  additional  $500.00,  in  cash 

5  Sold  25  bbls.  apples  @  $8.00,  for  cash 

6  Mr.  Luke  sent  home  for  his  private  use,  mdse.,  $25.00 
6  Gave  Mr.  Luke  for  his  private  use,  cash,  $35.00 

6  Paid  clerk's  salary,  $15.00 

8  Sold  100  bbls.  apples  @  $7.25,  for  cash 

10  Sold  100  bbls.  potatoes  @  $5.50,  for  cash 

11  Sold  75  bbls.  apples  @  $6.00,  for  cash 

'  For  additional  exercises,  see  end  of  Part  I. 

i°The  account  with  the  proprietor  may  be  styled  "S.  S.  Luke,  Inve6tanent>" 
or  "S.  S.  Luke,  Proprietor,"  or  "S.  S.  Luke,  Capital." 


ELEMENTARY  BOOKKEEPING  17 


6.  TRIAL  BALANCE  OF  TOTALS 

If  you  succeeded  in  properly  entering  Exercise  4B,  page  16,  you 
will  have  "opened'*  four  accounts.  In  actual  business,  these  accounts 
appear  in  a  book  called  the  Ledger.  You  are  now  requested  to  as- 
certain the  total  of  the  debit  side  and  of  the  credit  side  of  each  account 
in  the  Ledger,  and  to  list  these  totals  on  a  sheet  of  blank  paper.  Your 
result  should  be  as  follows: 

Trial  Balance  (of  Totals) 


S.  S.  Luke,  Investment 

$60.00 

$3,000.00 

Cash 

4,925.00 

1,530.00 

Merchandise 

1,400.00 

1,950.00 

Expense 

95.00 

$6,480.00  $6,480.00 

How  is  it  that  the  sum  of  the  debits  is  exactly  equal  to  the  sum 
of  the  credits?    The  question  is  easy  of  explanation: 

The  transaction  of  December  1  resulted  in  a  debit  of  $2,500.00  and  in  a 
credit  of  $2,500.00. 

The  transaction  of  December  2  resulted  in  a  debit  of  $1,400.00  and  in  a 
credit  of  $1,400.00. 

The  transaction  of  December  3  resulted  in  a  debit  of  $80.00  and  in  a 
credit  of  $80.00. 

The  transaction  of  December  4  resulted  in  a  debit  of  $500.00  and  in  a 
credit  of  $500.00. 

And  so  on. 

If  each  transaction  results,  as  it  should,  in  equal  debits  and  credits, 
then  the  siun  of  all  the  debits  should  be  equal  to  the  sum  of  all  the 
credits.  Thus,  we  find  in  bookkeeping  an  appUcation  of  an  axiom 
of  our  mathematics,  namely: 

The  Simis  of  Equals  are  Equal 

A  Trial  Balance  is  considered  proof  of  the  fact  that  the  book- 
keeper has  entered  debits  and  credits  of  equal  amount  for  each  trans- 
actimi. 


18 


BOOKKEEPING  AND  ACCOUNTING 


Questions 

1.  What  is  a  Trial  Balance  of  Totals?    What  are  its  functions? 

2.  What  does  the  debit  side  of  Mr.  Luke's  account  show?    The  credit 
side?    The  balance? 

3.  What  does  the  debit  side  of  Cash  account  show?    The  credit  side? 
The  balance? 

4.  What  does  the  debit  side  of  Merchandise  account  show?    The  credit 
side?    The  balance,  no  goods  being  unsold? 

5.  What  does  the  Expense  account  show? 

6.  Under  what  circumstances  might  Expense  account  be  credited? 


Exercise  5A.    Drill 

1.  The  following  accounts  result  from  the  transactions  which  occurred  in 
a  certain  business: 


Milton  A.  Lane,  Capital 


5  50.00 

100.00 

8.00 


$2,500.00 
1,000.00 


Merchandise 


$1,000.00 
1,875.00 


Cash 


$2,500.00 

80.00 

250.00 

1,000.00 

700.00 

23.13 

1,000.00 

50.00 

2.10 

1,875.00 

75.00 

100.00 

380.00 

400.00 

1,100.00 

345.00 

Ezpe 

nse 

$80.00 
23.13 


$2.10 


$250.00 

700.00 

75.00 

380.00 

400.00 

8.00 

1,100.00 

345.00 


Prepare  a  Trial  Balance  of  Totals. 

2.  Analyze  Mr.  Lane's  account,  i.e.,  tell  all  you  can  about  it.     (See  Prob- 


lem 1,  Exercise  5A,  above.) 

3.  Analyze  the  Merchandise  account. 


ELEMENTARY  BOOKKEEPING 


19 


4  Analyze  the  Cash  account. 

5.  Analyze  the  Expense  account. 

6.  Mr.  Lane  drew  out  $50.00.  Was  this  in  cash  or  in  merchandise?  Answer 
a  similar  question  in  reference  to  the  withdrawal  of  $8.00.  (Exercise  5A, 
page  18.) 

Exercise  5B  " 

Prepare  a  Trial  Balance  of  Totals  of  all  the  Ledger  accounts  resulting  from 
Problem  1,  Exercise  -14,  page  16. 


6.  TIME  TRANSACTIONS— CUSTOMERS" 

Thus  far  we  have  been  treating  of  purchases  and  sales,  each  one 
of  which  involved  either  the  receipt  or  the  expenditure  of  cash.  We 
shall  soon  widen  the  scope  of  our  knowledge.  First  consider  the  fol- 
lowing transactions: 

March  1     Sold  T.  Brown  10  bbls.  flour  @  $8.00,  for  cash 
March  3    Sold  F.  Green  10  bbls.  flour  @  $8.00,  for  cash 

Each  transaction  results  in  a  debit  to  Cash  account  and  a  credit 
to  Merchandise  account: 

Cash  Merchandise 


$80.00 


$80.00 


Would  the  entry  be  changed  in  any  way  if  these  goods  had  been 
sold  "on  account,''  that  is,  if  the  buyers  were  not  to  pay  for  thena 
at  once?  Our  motion  picture  screen  reveals  that  in  each  case  the 
business  parted  with  merchandise  but  apparently  received  nothing 
in  return.  We  are  sure  that  the  Merchandise  account  must  be  credited; 
we  are  also  sure  that  some  account  must  be  debited.  Our  solution 
might  be  expressed: 

?  Merchandise 


$80.00 


$80.00 


"  For  additional  exercises,  see  end  of  Part  I. 

"  Some  instructors  may  wish  to  introduce  the  Profit  and  Loss  Statement  and 
the  Statement  of  Assets  and  Liabilities  before  Time  Transactions.  Suitable  dis- 
cussion "^ill  be  found  on  ^p.  51  and  53. 


20 


BOOKKEEPING  AND  ACCOUNTING 


What  account  should  take  the  place  of  Cash  account?  This  will  be 
the  answer  to  the  question  mark  (*'?").  Are  we  sure  that  nothing 
was  received?  As  a  matter  of  fact,  T.  Brown  promises,  expressly  or 
by  legal  impHcation,  to  pay  us  for  these  goods.  The  business,  there- 
fore, receives  a  legal  claim  against  T.  Brown.  Until  he  extinguishes 
our  claim  against  him,  we  wish  to  keep  a  record  of  his  indebtedness, 
to  keep  "an  account"  of  it.  This  is  done  by  opening  an  account 
with  T.  Brown,  which  illustrates  what  is  meant  when  a  customer 
buying  on  time  says,  ** charge  this  to  my  account."  For  "charge" 
and  "debit,"  as  previously  indicated,  are  synonymous  terms  in  book- 
keeping.   The  correct  solutions  for  both  transactions  are  as  follows: 


T.  Brown 

F.  Green 

Merchandise 

$80.00 

$80.00 

$80.00 
80.00 

We  now  see  that  for  the  goods  given  we  have  two  credits  to  Mer- 
chandise account;  and  that  T.  Brown  and  F.  Green,  the  receivers  of 
these  goods,  are  respectively  debited  or  charged  with  $80.00  each. 
The  student  should  now  learn  to  associate  "personal"  accounts  of 
the  above  form  with  the  notion  of  "debtors,"  that  is,  with  people  in 
our  debt  or  owing  money  to  us. 

If  on  March  8,  we  sold  $100.00  worth  of  goods  to  T.  Brown,  he 
would  now  owe  us  $180.00,  and  his  account  would  indicate  the  fact 
by  appearing  as  follows: 


^b/4-/C2^^-**-***^«^ 


But  suppose  that  on  March  10,  T.  Brown  paid  us  $125.00  in  cash, 
"on  account,"  that  is,  by  way  of  part  payment  of  his  debt,  what 
entry  is  necessary?  Our  moving  pictures  should  show  that  the  busi- 
ness received  $125.00  in  cash,  and  that  the  business  gave  or  returned 
to  T.  Brown  a  part  of  its  claim  against  him.  Accordingly,  Cash  ac- 
count must  be  debited  and  T.  Brown's  account  credited.     How  much 


ELEMENTARY  BOOKKEEPING 


21 


does  T.  Brown  still  owe?    Does  not  the  following  account  correctly 
disclose  the  facts? 


i^ ,/^T^-V-U^-7^ 


"}ntui^ 


We  thus  see  that  personal  accounts,  like  all  other  accounts,  are 
debited  for  receipts  by  the  business  and  credited  for  disbursements 
by  the  business,  for  Brown  was  debited  for  the  legal  claim  we  received 
(when  we  sold  him  goods)  and  credited  for  what  we  gave  or  returned 
(the  reduction  of  our  claim  by  $125.00). 

In  analyzing  Mr.  Brown's  account,  the  bookkeeper  would  say 
that  Mr.  Brown  bought  $80.00  worth  of  goods  on  March  1  and  an 
additional  $100.00  worth  on  March  8;  that  he  paid  $125.00  on  March 
10;  that  he  still  owes  us  $55.00.  This  is  a  practical  analysis,  but 
from  the  point  of  view  of  technical  bookkeeping  it  would  be  more 
correct  to  say  that  Mr.  Brown's  account  shows  that  the  business  re- 
ceived a  claim  against  him  of  $80.00  on  March  1  and  another  claim 
of  $100.00  on  March  8;  that  the  business  gave  back  a  part  of  the 
claim,  namely  $125.00,  on  March  10;  and  that  the  business  still  holds 
a  claim  of  $55.00  against  Mr.  Brown.  The  author  deems  it  advisable 
to  employ  the  technical  analysis  until  the  student  has  become  thor- 
oughly grounded  in  the  principles  of  debit  and  credit.  When  debiting 
and  crediting  become  automatic,  the  practical  man's  analysis  becomes 
more  desirable. 

Questions 

1.  Distinguish  between  a  cash  sale  and  a  sale  on  account. 

2.  To  whom  do  we  sell  on  account? 

3.  Would  you  be  willing  to  sell  on  account  to  everybody?    Discuss  fully. 

4.  How  can  you  tell  how  much  a  person  owes  you? 

5.  What  is  the  appearance  of  a  personal  accoimt  after  settlement  (pay- 
ment in  full)? 

6.  Show  that  the  general  rule  for  debiting  and  crediting,  namely:  "Debit 
appropriately  named  accounts  to  record  what  the  business  receives.  Credit 
appropriately  named  accoimts  to  record  what  the  business  gives,"  applies 
to  accounts  with  customers. 


22 


BOOKKEEPING  AND  ACCOUNTING 


Exercise  6A.    Drill 

1.  Orally  indicate  the  debits  and  credits  resulting  from  the  following 
transactions: 

a.  Bot.  mdse.  for  cash  ($6,000.00) 
h.  Sold  mdse.  for  cash  ($500.00) 

c.  Sold  mdse.  to  Smith  for  cash  ($500.00) 

d.  Sold  mdse.  to  Smith  on  acct.  ($500.00) 

e.  Smith  paid  us  ($500.00) 

/.  Sold  Brown  on  acct.  ($800.00) 
g.  Brown  paid  us  on  acct.  ($300.00) 
h.  Reed,  from  Brown  cash  on  acct.  ($400.00) 
i.  Reed,  from  Brown  cash  in  full  to  balance  acct.  ($100.00) 
j.  Sold  Thompson  on  acct.  ($950.00) 
h.  Thompson  paid  us  cash  in  full  of  his  acct.  ($950.00) 
I  Sold  Simpson  on  acct.  ($600.00) 
m.  Sold  Brownson  on  acct.  ($750.00) 
n.  Sold  Simpson  on  acct.  ($350.00) 
0.  Reed,  from  Brownson  on  acct.  ($250.00) 
p.  Sold  Simpson  on  acct.  ($1,000.00) 
q.  Simpson  paid  us  cash  on  acct.  ($1,200.00) 
r.  Sold  James  &  Co.  on  account  ($210.00) 
s.  Sold  Stewart  &  Son,  on  acct.  ($815.00) 
t.  Sold  Thompson,  on  acct.  ($768.00) 
u.  Sold  Thompson  mdse.  on  acct.  ($1,000.00) 

2.  Employing  a  form  corresponding  to  the  following,  enter  therein  the 
foregoing  transactions : 


Debit 

Credit 

a 

b 

c 

d 

e 

3.  Set  up  the  accounts  resulting  from  the  transactions  in  Problem  1,  above. 

4.  Analyze  the  account  with  Smith. 
6.  Analyze  the  account  with  Brown. 

6.  Analyze  Thompson's  account. 

7.  How  much  does  Brownson  owe  us? 

8.  Prepare  a  hst  showing  how  much  each  person  owes  us,  and  the  total 
of  all  such  debts. 


ELEMENTARY  BOOKKEEPING 


23 


Exercise  6B  ^s 
Enter  the  following  transactions: 

May   1  Thomas  Stewart "  began  the  flour  and  grain  business  by  investing 
cash  $1,500.00 

2  Paid  rent  of  store  $50.00 

4  Bot.  for  cash  100  bbls.  flour  @  $7.00  and  100  bu.  grain  @  $1.00 

6  Bot.  100  bbls.  flour  @  7.00,  for  cash.    Paid  salary  $15.00 

8  Sold  to  F.  Veit,  on  acct.,  10  bbls.  flour  @  $9.00 

9  Sold  to  Seymour  Bros.,  on  acct.,  25  bbls.  flour  @  $9.00 

10  Sold  to  F.  Veit,  on  acct.,  20  bbls.  flour  @  $9.00 

11  Reed,  of  F.  Veit,  on  acct.,  cash  $100.00 

12  Reed,  of  Seymour  Bros.,  on  acct.,  $150.00 

13  Paid  salary,  $15.00.    Mr.  Stewart  took  mdse.  for  private  use,  $10.00 
15  Sold  to  Frank  Simpson,  on  acct.,  50  bu.  grain  @  $1.25.    Sold  F. 

Veit,  on  acct.,  20  bbls.  flour  @  $9.00.    Reed,  from  Seymour  Bros., 
cash,  $76.00,  in  full  of  acct. 


7.  TIME  TRANSACTIONS— CREDITORS 

It  is  now  necessary  to  consider  purchases  *'on  account."  Let  us 
discuss  the  following  transactions: 

April  1    Bot.  of  L.  Martin,  on  acct.,  100  bbls.  beef  @  $15.00. 
5    Bot.  of  Sable  &  Co.,  on  acct.,  25  bbls.  apples  @  $4.00. 

In  each  case,  as  goods  were  received  by  us.  Merchandise  account 
must  be  debited.  As  we  did  not  pay  at  once,  that  is,  did  not  imme- 
diately give  cash  in  return,  some  other  account  than  Cash  must  be 
credited.  The  fact  is  that  we  owe  L.  Martin  and  Sable  &  Co.,  $1,500.00 
and  $100.00,  respectively.  L.  Martin  and  Sable  &  Co.  are  our  creditors, 
because  we  owe  them  money. 

As  in  the  case  of  time  sales,  we  must  also  keep  a  record  of  how 
much  we  owe  our  creditors.  The  following  solution  should  now  be 
easily  understood: 


Merchandise 


L.  Martin 


Sable  &  Co. 


$1,500.00 
100.00 


$1,500.00 


$100.00 


*'  For  additional  exercises,  see  end  of  Part  I. 

^*  Always  use  the  full  given  name.  Do  not  employ  initials  unless  so  specified  in 
the  text.  Abbreviations  of  or  changes  in  proper  names  are  not  tolerated  in  actual 
business  practice;  they  must  appear  exactly  as  shown. 


24 


BOOKKEEPING  AND  ACCOUNTING 


The  Merchandise  account  shows  that  we  purchased  and  therefore 
received  $1,600.00  worth  of  goods;  the  account  of  L.  Martin  shows 
that  we  owe  him  $1,500.00  (we  gave  him  a  legal  claim  against  us  for 
$1,500.00);  Sable  &  Co.^s  account  shows  that  we  owe  them  $100.00 
(we  gave  them  a  legal  claim  of  $100.00  against  us). 

Two  additional  transactions  with  L.  Martin  should  be  helpful  to 
the  student: 

Apr.  12    Gave  L.  Martin,  on  account,  cash,  $1,000.00. 
30    Paid  L.  Martin,  cash  $500.00,  in  full  of  account. 


It  should  be  clear  that,  after  the  transaction  of  April  12,  we  still  owe 
L.  Martin  $500.00.  This  is  shown  by  his  account  which  appears  as 
follows: 

L.  Martin  This   account   now  shows   that   we   gave 

L.  Martin  a   claim   against   us  of  $1,500.00 

$1,000.00      $1,500.00       and    that    we    received    back    $1,000.00    of 

this  claim.     L.  Martin  therefore  still  holds  a 

claim  of  $500.00  against  us. 

The  credit  balance  of  $500.00,  that  is,  the  excess  of  $500.00  on  the 

credit  side,  shows  that  we  owe  him  $500.00.     The  transaction  of  April 

30  settled  the  account.    As  we  no  longer  owe  L.  Martin,  his  Ledger 

account  must  show  this  fact: 


^^y/72ivyL^i^riy 


7*^^ 


(:Z^^u^ 


/  2. 


Ay>^ 


Questions 

1.  Distinguish  between  buying  for  cash  and  buying  on  account. 

2.  Distinguish  between  a  customer  and  a  creditor. 

3.  How  can  you  tell  from  any  personal  account  in  the  Ledger,  say  John 
Smith's  account,  whether  you  owe  Smith  or  whether  Smith  owes  you? 

4.  Show  that  the  general  rule  for  debiting  and  crediting  accounts  applies 
to  accounts  with  creditors. 


ELEMENTARY  BOOKKEEPING  26 

Exercise  7A.    Drill 

1.  Orally  decide  on  the  debits  and  credits  for  the  following  transactions: 

a.  F.  Grant  invested  cash  in  business  ($3,000.00) 

b.  Paid  rent  and  other  expenses  ($360.00) 

c.  Bot.  mdse.  for  cash  ($1,800.00) 

d.  Sold  mdse.  for  cash  ($1,500.00) 

e.  Bot.  mdse.  from  Sanders  on  acct.  ($375.00) 
/.  Paid  Sanders  cash  in  full  of  acct.  ($375.00) 
g.  Bot.  of  Rogers,  mdse.  on  acct.  ($780.00) 

h.  Paid  Rogers  cash  on  acct.  ($500.00) 

i.  Paid  Rogers  balance  of  acct.  ($280.00) 

j.  Bot.  of  Sanders  mdse.  on  acct.  ($450.00) 

k.  Bot.  of  Crane,  mdse.  on  p,cct.  ($700.00) 

I.  Bot.  of  Bancroft,  mdse.  on  acct.  ($565.00) 

m.  Bot.  of  Loomis,  mdse.  on  acct.  ($308.00) 

n.  Bot.  of  Crane,  mdse.  on  acct.  ($475.00) 

0.  Paid  Bancroft  cash  on  acct.  ($250.00) 

p.  Bot.  of  Crane,  mdse.  on  acct.  ($1,200.(X)) 

q.  Paid  Sanders  cash  on  acct.  ($300.(X)) 

2.  Emplojang  the  analysis  form  used  for  Problem  2  of  Exercise  6^1,  page 
22,  enter  the  foregoing  transactions  therein. 

3.  Set  up  the  accounts  resulting  from  the  foregoing  transactions. 

4.  Analyze  Sanders'  account. 

5.  Analyze  the  account  with  Crane. 

6.  Analyze  Bancroft's  account. 

7.  Prepare  a  list  of  our  debts  to  individual  creditors.    How  much  is  our 
total  indebtedness? 

Exercise  7B» 

Enter  the  following  transactions: 

May    1  Robert  Gray  began  business  by  investing  cash  $2,000.00 

2  Paid  rent  of  store,  $75.00 

3  Bot.  of  L.  Martin,  on  acct.,  100  bbls.  flour  @  $7.00 

4  Bot.  of  Browne  Bros.  &  Co.,  on  acct.,  200  bbls.  flour  @  $7.00 

5  Bot.  of  Franklin  &  Son,  on  acct.,  1,000  bu.  grain  @  $.95 

6  Sold  to  F.  Veit  for  cash,  100  bbls.  flour  @  $10.00.    Paid  salaries 

$20.00,  cash 

8  Bot.  of  L.  Martin,  on  acct.,  100  bbls.  flour  @  $7.00 

9  Paid  on  acct.  $500.00  to  L.  Martin 

10  Paid  Browne  Bros.  &  Co.,  on  acct.,  $600.00 

11  Bot.  of  L.  Martin,  on  acct.,  1,000  bu.  of  corn  @  $.90 

"  For  additional  exercises^  see  end  of  Part  I. 


26 


BOOKKEEPING  AND  ACCOUNTING 


12  Bot.  of  Browne  Bros.  &  Co.,  on  aoct.,  1,000  bu.  of  com  @  $.90 

13  Sold  to  Tracy  Bros.,  for  cash,  2,500  bu.  corn  @  $1.00.    Paid  salaries 

$20.00,  cash 

14  Paid  Browne  Bros.  &  Co.,  on  acct.,  $1,000.00 

15  Sold  to  M.  Castle,  on  acct.,  50  bbls.  flour  @  $10.00 

15    Sold  to  Carlyle  Bros.,  on  acct.,  25  bbls.  flour  @  $10.00,  and  500  bu. 
corn  @  $.90 


8.  TIME  TRANSACTIONS— CUSTOMERS  AND   CREDITORS 

Before  proceeding  further,  it  will  be  well  to  drill  (5n  the  type  of 
accounts  introduced  in  the  two  preceding  sections. 

Is  the  following  account  with  a  customer  or  with  a  creditor? 

John  Cooper 


Mayl      $200.00 


May  1       $200.00 


No  one  can  tell,  for  a  reason  which  will  be  made  clear  in  the  next 
illustration. 

Is  the  following  an  account  with  a  customer  or  with  a  creditor? 

John  Cooper 


Mayl       $200.00 


May  15     $200.00 


John  Cooper  is  a  customer.  The  account  shows  that  he  received 
(purchased)  on  May  1  and  gave  (paid  the  account)  on  May  15.  As 
he  received  before  he  gave,  the  conclusion  is  that  he  must  be  a  customer, 
on  the  general  assumption  that  he  would  not  be  likely  to  pay  before 
receiving  the  goods  for  which  he  paid. 

Is  Peter  Jones  our  customer  or  our  creditor? 

^  Peter  Jones 


$1,000.00 


$500.00 
200.00 
300.00 


Once  again,  we  cannot  tell.    It  may  be  that  Jones  bought  $1,000.00 
worth  of  goods  on  account,  and  paid  for  them  in  three  installments. 


ELEMENTARY  BOOKKEEPING  27 

On  the  other  hand,  we  may  have  bought  three  bills  of  goods  from 
him,  and  paid  the  three  invoices  at  once.  The  solution  is  not  cleai 
until  the  dates  of  the  transactions  are  ascertained: 

Peter  Jones 


Aug.  7    $1,000.00 


July  3  $500.00 
18  200.00 
27       300.00 


It  is  now  easily  seen  that  we  bought  $500  worth  of  goods  on  July 
3,  $200  on  July  18,  and  $300  on  July  27.  We  paid  the  three  invoices 
on  the  7th  of  the  following  month.  The  account  with  Peter  Jones 
is  therefore  with  a  creditor. 

Questions 

1.  Why  are  personal  accounts  kept? 

2.  Distinguish  between  our  debtors  and  our  creditors. 

3.  How  can  you  tell  whether  a  given  personal  account  shows  that  the 
balance  is  due  to  or  due  by  the  business? 

4.  What  is  the  rule  for  debiting  and  crediting  personal  accounts?  Show 
that  it  is  the  same  as  that  for  the  other  accounts  with  which  you  are  familiar. 

5.  Show  that  the  general  rule  for  debit  a'nd  credit,  namely,  "Debit  appro- 
priately named  accounts  to  record  receipts  by  the  business,  and  credit  appro- 
priately named  accounts  to  record  whatever  the  business  gives,"  applies  to 
personal  accounts. 

Exercise  8A.    Drill 

1.  Orally  decide  upon  the  debits  and  credits  arising  out  of  the  following 
transactions: 

a.  H.  C.  Bell  commenced  business  by  investing  cash  ($5,000.00) 
6.  Paid  various  expense  items  in  cash  ($280.00) 
c.  Bot.  mdse.  for  cash  ($1,200.00) 
d  Sold  mdse.  for  cash  ($110.00) 
6.  Bot.  mdse.  of  T.  Krummel  on  acct.  ($1,800.00) 
/.  Sold  mdse.  to  B.  Lange  on  acct.  ($1,500.00) 
g.  Paid  T.  Krununel  on  acct.  ($1,000.00) 
h.  B.  Lange  paid  us  cash  on  acct.  ($900.00) 
t.  Sold  B.  Lange  mdse.  on  acct.  ($1,350.00) 
j,  Bot.  mdse.  of  R.  Janery  on  acct.  ($2,650.00) 
k.  Bot.  mdse.  of  T.  Krummel  on  acct.  ($985.00) 
I.  Sold  B.  Lange  mdse.  on  acct.  ($860.00) 
m.  Bot.  mdse.  of  T.  Krummel  on  acct.  ($1,070.00) 
n.  Paid  R.  Janery,  on  acct.  ($1,000.00) 


28 


BOOKKEEPING  AND  ACCOUNTING 


0.  Sold  H.  Koopman  mdse.  on  acct.  ($550.00) 
p.  Sold  P.  Bailey,  mdse.  on  acct.  ($975.00) 
q.  Paid  T.  Krummel  on  acct.  ($500.00) 
r.  Sold  H.  Koopman  mdse.  on  acct.  ($1,000.00) 
s.  H.  Koopman  paid  us  on  acct.  ($500.00) 
t.  H.  Koopman  paid  on  acct.  ($600.00) 
u.  Bot.  of  Marlow  &  Lynch,  mdse.  on  acct.  ($300.00) 
V.  H.  Koopman  paid  invoice  in  full  ($450.00) 
w.  Bot.  of  Marlow  &  Lynch,  mdse.  on  acct.  ($470.00) 

2.  Employing  a  form  such  as  shown  in  problem  2,  Exercise  QA,  page  22, 
place  therein  the  foregoing  transactions.  Also  set  up  the  corresponding  "  T  " 
accounts. 

3.  Analyze  T.  Krummel's  account. 

4.  Analyze  H.  Koopman's  account. 

5.  Prepare  a  schedule  of  customers'  balances.    How  much  is  due  us? 

6.  Prepare  a  schedule  of  creditors'  balances.     How  much  do  we  owe? 

7.  Prepare  a  trial  balance  of  totals. 

8.  Analyze  the  following  account  with  a  customer: 


H.  A. 

Arnold 

19— 

19— 

Apr.    6 

Mdse. 

$210.00 

May  2 

Cash 

$   670.00 

27 

Mdse. 

460.00 

June  3 

Cash 

910.00 

May  24 

Mdse. 

910.00 

July  2 

Cash 

1,550.00 

June    7 

Mdse. 

350.00 

24 

Mdse. 

800.00 

28 

Mdse. 

400.00 

o.  How    much    did    Mr.    Arnold    buy    during    April?    May?    Jime? 
Altogether? 

b.  Does  he  pay  promptly?    Tell  exactly  how  he  pays. 

c.  How  much  does  he  still  owe? 

d.  Do  you  consider  him  a  good  customer?    Why? 

9.  Similarly  analyze  this  account: 

Banjemann  &  Bunnelle 


19— 

19— 

Mar.  16 

Mdse. 

$675.00 

July    1 

Cash 

$200.00 

July  21 

Mdse. 

850.00 

8 

Cash 

300.00 

22 

Mdse. 

95.00 

Sept.  15 

Cash 

250.00 

Oct.   15 

Mdse. 

100.00 

ELEMENTARY  BOOKKEEPING  29 

In  addition  to  answering  questions  similar  to  those  in  reference  to  H.  A. 
Arnold's  statement,  what  would  you  do  if  Banjemann  &  Bunnelle  sent  you 
an  order  for  $500.00  on  December  19,  19 — ,  when  their  account  appeared  as 
here  reproduced?    Answer  fully,  with  reasons. 

Exercise  8Bi« 

Enter  the  following  transactions  and  prepare  a  Trial  Balance  of  Totals: 

May    1    H.  Siegel  began  the  flour  and  grain  business  by  investing  cash, 
$5,000.00 

2  Bot.  of  T.  Brown,  100  bbls.  flour  @  $7.00  and  200  bu.  grain  @  $1.00, 

for  cash 

3  Paid  rent  $50.00  and  sundry  expense  items  $24.00  cash 

4  Bot.  of  Chicago  Flour  Co.,  on  acct.,  100  bbls.  flour  @  $6.90 

5  Sold  to  Thompson  &  Bro.,  cash,  100  bu.  grain  @  $1.25 

6  Sold  to  Arnold  &  Co.,  on  acct.,  50  bbls.  flour  @  $9.00 

6    Sold  to  Bennett  &  Son,  on  acct.,  50  bu.  grain  @  $1.20  and  20  bbl 
flour  @  $9.00 

8  Bot.  of  Chicago  Flour  Co.,  on  acct.,  200  bbls.  flour  @  $7.00 

9  Paid  Chicago  Flour  Co.,  on  acct.,  $1,000.00  cash 

9  Sold  Arnold  &  Co.,  on  acct.,  50  bbls.  flour  @  $9.00 

11  Reed,  of  Bennett  &  Son,  on  acct.,  $150.00 

13  Reed,  of  Arnold  &  Co.,  on  acct.,  cash  $500.00 

15  Paid  Chicago  Flour  Co.,  on  acct.,  cash  $500.00 

15  Sold  to  Brooklyn  Trading  Co.,  on  acct.,  150  bbls.  flour  @  $9.00 

15  Sold  for  cash,  30  bbls.  flour  @  $9.00  and  50  bu.  grain  @  $1.30 


9.  THE  JOURNAL 

The  student  who  solved  Exercise  SB  began  by  mentally  deciding 
that  as  a  result  of  the  May  1st  transaction,  Cash  account  was  to  be 
debited  for  $5,000.00  and  the  account  of  H.  Siegel,  Proprietor,  was 
to  be  credited  for  a  like  amount.    His  solution  assumed  the  form: 

Cash  H.  Siegel,  Proprietor 


$5,000.00 


$5,000.00 


Instead  of  making  the  entries  at  once,  he  might  have  decided 
them  mentally  and  have  made  a  memorandum  of  all  the  solution  on 

"  Foe  additioaal  exercises,  see  end  of  Part  I. 


30 


BOOKKEEPING  AND  ACCOUNTING 


an  analysis  form,  such  as  is  illustrated  in  problem  2,  Exercise  6^1,  page 
22,  and  then  have  placed  them  in  the  Ledger  accounts.  Or,  he  might 
have  set  his  analysis  down  thus: 


//f- 


-j'^i 


7U. 


/  z.'J  'ao 


Saoc 


faa 


7^ 


/  2-6'ac 


The  solutions  are  read: 

May  1    Cash  to  H.  Siegel,  Proprietor,  $5,000.00. 
May  2    Mdse.  to  Cash,  $900.00,  etc. 


The  student  should  note  that  the  first  item  is  not  read,  "cash,  debit, 
$5,000.00;  H.  Siegel,  Prop.,  credit,  $5,000.00."  The  amount  is  read 
just  once,  and  debit  and  credit  are  dropped,  the  word  "to"  taking 
their  place  and  being  employed  to  separate  the  debits  from  the  credits. 
Observe  that  the  writing  of  the  terms  "  debit "  and  "  credit "  may 
easily  be  dispensed  with.  Notice  the  gradual  elimination  of  the  terms 
in  question. 

In  practice,  the  bookkeeper  uses  specially  ruled  sheets,  such  as  here 
employed,  to  record  his  analysis  into  debits  and  credits,  so  that  when 
the  transactions  are  properly  entered  he  has  the  form  shown  on  the 
following  page. 


ELEMENTARY  BOOKKEEPING 


31 


Scoc  oo 


^00a>t? 


7^ 


6f<p 


/X^S'£>C 


Observations. — 

1.  The  dates  are  written  in  the  middle  of  the  page,  occupying  a 

line  between  entries,  and  the  month  and  year  usually  appear 
but  once  on  each  page. 

2.  Each  account  which  is  to  be  debited  is  written  close  to  the  ver- 

tical lines;  the  amount  is  entered  in  the  first  money  column 
on  the  same  line. 

3.  Accounts  which  are  to  be   credited  are  written  beneath  the 

debit  items,  about  one-half  inch  to  the  right;  the  amount  is 
entered  in  the  second  column  on  the  same  line. 

4.  Were  it  not  for  the  fact  that  bookkeepers  call  the  foregoing 

book  the  Journal,  it  might  suitably  enough  be  styled  the  In- 
dicator, because  the  entries  therein  simply  indicate  debits 
and  credits  resulting  from  each  transaction. 

Questions 

1.  Does  the  Journal  help  you  in  debiting  ana  crediting  accounts?    Why? 

2.  Compare  the  Journal  with  the  analysis  form  used  in  problem  2,  Exercise 
2A,  page  10.    What  have  these  two  forms  in  common? 

3.  State  in  your  own  words  how  a  transaction  should  be  entered  in  the 
Journal. 


82  BOOKKEEPING  AND  ACCOUNTING 

Exercise  9A.    Drill 

1.  Orally  journalize  all  the  transactions  of  Problem  1,  Exercise  8A,  page 
27.    Read  your  results  thus: 

a.  Cash  to  H.  C.  Bell,  Capital,  $5,000.00. 

b.  Expense  to  Cash,  $280.00,  etc.,  etc. 

2.  Employing  properly  ruled  Journal  sheets,  and,  supplying  your  own 
dates,  journalize  the  transactions  of  Problem  1,  Exercise  8A,  page  27. 

3.  Interpret  the  following  Journal  entries,  i.e.,  state  what  transactions 
probably  gave  rise  to  each  of  them,  respectively,  and  give  full  reasons  in  each 
case: 


o.  Cash 

Thos.  Healy,  Prop. 

$2,500.00 

$2,500.00 

6.  Expense 
Cash 

75.00 

75.00 

c.  Mdse. 

Cash 

350.00 

350.00 

d.  Cash 

Mdse. 

210.00 

210.00 

e.  Mdse. 

Frank  Root 

700.00 

700.00 

/.  J.  Goodman 
Mdse. 

Soo.oo 

500.00 

g.  Thos.  Healy,  Prop. 
Cash 

25.00 

25.00 

h.  Thos.  Healy,  Prop. 
Mdse. 

12.00 

12.00 

i.  Cash 

J.  Goodman 

350.00 

350.00 

j.  Cash 

J.  Goodman 

150.00 

150.00 

k.  Frank  Root 
Cash 

700.00 

700.00 

Exercise  9B 
Journalize  the  transactions  of  Exercise  6B,  page  23. 


ELEMENTARY  BOOKKEEPING 


33 


10.  POSTING 

If  the  Journal  simply  indicates  debits  and  credits,  journalizing 
is  an  incomplete  process.  The  accounts  to  be  debited  and  credited 
must  be  transferred  to  the  proper  Ledger  accounts,  as  indicated.  This 
act  of  transferring  to  the  Ledger  is  called  posting.  For  example,  the 
first  entry  in  the  Journal  (page  29)  should  be  posted  so  as  to  result  in: 


Cash 


H.  Seigel,  Proprietor 


Mayl   $5,000.00 


The  first  three  Journal  entries  produce: 
Cash 


Mayl   $5,000.00 


H.  Seigel,  Proprietor 


May  1    $5,000.00 


May  2    $900.00 
3       74.00 


May  1  $5,000.00 


Merchandise 


Expense 


May  2     $900.00 


May  3     $74.00 


As  each  item  is  posted,  the  page  of  the  Ledger  to  which  it  has 
been  transferred  is  placed  in  the  colunm  immediately  to  the  left  of 
the  Journal  entry.  Thus,  if  the  Cash  account  is  on  page  two  and  the 
Proprietor's  account  on  page  one,  the  Joiu^nal  entry  of  May  1,  after 
posting,  appears  as  follows: 


^ 


A/'f" 


KS'ociPc^c 


JV^^s' 


The  figures  serve  two  purposes;    they  act  as  "checks"  on  the 
posting  process,  that  is,  they  show  that  the  transferring  was  accom- 


a4 


BOOKKEEPING  AND  ACCOUNTING 


plished,  and  they  also  point  out  where  any  particular  items  may  be 
foxmd  in  the  Ledger. 

In  the  Ledger,  too,  a  similar  check  is  employed.  Its  object  is  to 
tell  whence  a  particular  item  was  taken.  The  page  of  the  Journal, 
together  with  the  initial  letter  of  the  book,  "J,"  is  placed  imme- 
diately to  the  left  of  the  amount,^^  in  the  column  which  the  student 
will  find  on  each  Ledger  page.  Assuming  that  page  one  of  the  Journal 
was  used,  the  two  accounts  resulting  from  the  entry  of  May  1,  would 
appear  as  follows: 


/' 


^Sooc  <:?c 


7=^ 


/ 


/  S'£>C>£> 


Questions 

1.  Why  is  journalizing  an  incomplete  process?     (Recall  the  purpose  of  the 
Journal.) 

2.  How  does  posting  complete  the  process? 

3.  What  is  meant  by  checking? 

4.  Is  it  essential  to  indicate  in  the  Journal  to  which  page  or  folio  of  the 
Ledger,  items  were  posted?    Why? 

5.  What  useful  purpose  is  served  by  indicating  in  the  Ledger  from  which 
Journal  page  an  item  came? 

Exercise  lOA.    Drill 

1.  Post  the  items  from  the  Journal  resulting  from  Problem  2,  Exercise 
9A,  page  32.     (Use  "T"  accounts  instead  of  formal  Ledger  sheets.) 

2.  Take  a  Trial  Balance  of  Totals  to  prove  the  correctness  of  your  postings. 

"The  "J"  may  be  placed  in  the  narrow  column  where  the  page  "1"  appears, 
as  shown,  or  it  may  be  written  in  the  wide  space  to  the  left. 


ELEMENTARY  BOOKKEEPING 


36- 


Exercise  lOB  « 

Post  the  entries  resulting  from  journalizing  9B  and  taite  a  Trial  Balance 
of  Totals. 

11.  THE  JOURNAL  (Concluded) 

In  Section  9,  the  student  was  introduced  to  the  Journal  employed 
as  a  book  intermediate  between  the  list  of  transactions  and  the 
Ledger.  In  this  capacity,  its  sole  service  was  that  of  an  indicator, 
as  was  previously  pointed  out.  The  bookkeeper  has  extended  its 
function  so  that  it  not  only  is  an  indicator,  but  it  is  also  the  record 
of  the  transaction.  At  one  time,  it  was  customary  to  enter  transac- 
tions first  in  a  so-called  **Day  Book"  and  then  to  separate  them  into 
their  proper  Ledger  accoimts.  Nowadays,  the  Journal  and  the  Day 
Book  are  combined  into  one,  the  Day  Book-Journal.  The  bookkeeper 
invariably  refers  to  this  combination  as  The  Journal  (from  the  French, 
through  the  Latin  Diurnalis,  giving  us  the  English  Diurnal,  daily) 
and  it  is  so  employed  throughout  the  rest  of  this  text.  The  Journal, 
in  its  complete  form,  for  the  first  five  transactions  of  May  (Exercise 
SB)  and  after  posting,  follows: 


/./f- 


kT^oc  aa 


fats>aa 


7m 


/z^^<? 


KfePOxyoa 


f^ti^iPi 


y^^fia 


dffioa 


/  2.^-4?, 


. 


"  For  additional  exercises,  see  end  of  Part  I. 


36 


BOOKKEEPING  AND  ACCOUNTING 


Observe  the  explanations  which  accompany  each  entry  in  the 
Journal.  Every  first  record  (original  entry)  of  a  transaction  should 
be  self-explanatory.  The  bookkeeper  should  test  each  original  entry 
explanation  by  some  such  standard  as,  for  example,  whether  or  not 
it  is  complete,  clear  and  concise. 

The  student  knows  that  the  Journal  entry  for  the  following  trans- 
action : 

Sold  to  Thos.  Jones,  for  cash,  100  bbls.  flour  @  $10.00, 

is  as  follows: 

Date 


Cash 

Sold  Thomas  Jones 

1,000 

00 

Mdse. 

100  bbls.  flour  $10.00 

1,000 

00 


Many  bookkeepers  hold,  however,  that  the  foregoing  entry  is  weak 
in  a  very  important  respect.  It  fails  to  open  an  account  with  Thomas 
Jones,  so  that  there  is  no  convenient  record  of  the  transactions  with 
him.  When  it  is  desired  to  keep  personal  accounts  with  all  customers, 
including  those  who  buy  for  cash,  two  entries  are  required : 

Date 


Thomas  Jones 

Sold  for  cash 

1,000 

00 

Mdse. 

100  bbls.  flour  $10.00 

1,000 

00 

Da 

te 

Cash 

Cash  in  full  for 

1,000 

00 

Thomas  Jones 

invoice  of  today 

1,000 

00 

It  is  readily  seen  that  the  Ledger  account  of  Thomas  Jones  is  closed, 
but  it  does  nevertheless  record  the  transaction.  Very  good  reasons 
can  be  advanced  in  favor  of  the  two  entries  just  shown,  despite  the 
fact  that  they  involve  additional  work.  The  student  should  decide 
for  himself  which  procedure  he  favors,  unless  his  instructor  gives 
different  directions. 

Questions 

1.  What  is  the  fimction  of  the  Journal? 

2.  Why  may  the  Journal  be  called  a  "book  of  original  entry"? 

3.  Justify  the  term  "book  of  final  entry"  as  sometimes  appHed  to  the 
Ledger. 


ELEMENTARY  BOOKKEEPING  37 

4.  Criticize  the  following  explanations  for  the  transactions  of  Exercise  SB: 
(a)  May  4 

Bot.  of  Chicago  Flour  Co.,  on  acct., 

100  bbls.  flour  $6.90 

Is   it   clear?    Complete?    Concise?    Is   "Chicago   Floiu-   Co." 

necessary?    Explain. 
(6)  May  5 

Sold  to  Thompson  &  Bro.  for  cash 

100  bu.  grain  $1.25 

Is  "for  cash"  necessary?    Explain, 
(c)  May  2 

Bot.  100  bbls.  flour  $7.00 

Bot.  200  bu.  grain  $1.00 

Why  is  it  not  complete?    Explain  fully. 

Exercise  llA.    Drill 

1.  Orally  journalize  the  following  transactions: 
19— 

Sept.  16  H.  Spencer  began  business  by  investing  Cash,  $6,000.00.  Paid 
rent  of  store,  $100.00;  printing  and  stationery  bills,  $32.00,  and 
for  signs,  $44.00 

18  Bot.  of  J.  Wallace,  500  bbls.  flour  @  $8.00,  for  cash 

19  Bot.  of  J.  Tyndall,  on  acct.,  300  bbls.  flour  @  $8.00  and  2,000  bu. 

wheat  @  $1.00 
Bot.  of  M.  Thackeray  &  Son,  on  acct.,  500  bbls.  flour  @  $8.00  and 

3,000  bu.  oats  @  60c. 
Bot.  of  J.  Wallace  on  acct.,  2,500  bu.  oats  @  60c. 

21  Sold  L.  Irwin,  for  cash,  30  bbls.  flour  @  $10.00 

22  Sold  T.  Cobb  on  acct.  100  bbls.  flour  @  $10.00 

25  Bot.  of  J.  Tyndall  on  acct.,  400  bbls.  flour  @  $8.00 

26  Sold  L.  Irwin,  on  acct.,  100  bbls.  flour  @  $10.00,  and  500  bu.  wheat 

@  $1.20 

Sold  T.  Cobb,  on  acct.,  1,000  bu.  oats  @  75c. 
28    Paid  J.  Wallace  on  acct.,  $1,000.00 

Paid  J.  Wallace  in  full  of  acct.,  $500.00 
30    Reed,  cash  from  T.  Cobb.,  in  full,  $1,750.00 

Reed,  from  L.  Irwin,  cash  on  acct.,  $500.00 

2.  Journalize  the  above  transactions,  using  Journal  sheets  for  the  purpose. 

3.  Post  the  Journal  entries  resulting  from  Problem  2,  above. 

4.  How  many  dollars  worth  of  goods  was  sold  to  L.  Irwin?    How  can  you 
tell?    (Recall  page  36.) 

Exercise  IIB  i> 
Journalize  Exercise  7B,  page  25.    Post  the  resultmg  Journal  entries. 
"  For  additional  exercises,  see  end  of  Part  I. 


38  BOOKKEEPING  AND  ACCOUNTING 

12.  NOTE  TRANSACTIONS 

Try  to  journalize  the  following  transactions: 

June    4  Sold  R.  Brown,  100  bbls.  flour  @  $9.00,  for  cash 

5  Sold  R.  Brown,  100  bbls.  flour  @  $9.00,  on  acct. 

6  Sold  R.  Brown,  100  bbls.  flour  @  $9.00,  on  his  10-day  note  2" 
16  R.  Brown  paid  his  note  of  the  6th  inst.,  cash,  $900.00 

The  first  two  give  no  trouble: 

June  4,  19 — 
Cash  $900.00 

Mdse.  $900.00 

5 
R.  Brown  900.00 

Mdse.  900.00 

But  how  about  the  third?  The  moving  picture  device,  called 
to  our  aid,  shows  that  we  received  a  note  instead  of  cash  for  the  goods 
we  gave.    Accordingly,  we  obtain: 

June  6,  19— 
"Note"  $900.00 

Mdse.  $900.00 

As  the  bookkeeper  calls  such  notes  "  Notes  Receivable,^'  fche  proper 
entry  is: 

June  6,  19— 
Notes  Receivable  $900.00 

Mdse.  $900.00 

Upon  posting,  we  have: 

Notes  Receivable  Merchandise 


$900.00 


$900.00 


We  must  now  treat  the  transaction  of  ten  days  later.    It  reads: 
"June  16,  R.  Brown  paid  his  note  of  the  6th  inst.,  cash,  $900.00." 

^  For  illustrations  of  promissory  notes,  see  pages  63  and  395. 


ELEMENTARY   BOOKKEEPING  39 

As  we  received  money,  Cash  account  must  be  debited.  What 
did  we  give  in  return?  We  had  to  return  Mr.  Brown's  written  prom- 
ise to  him,  hence  we  must  credit  Notes  Receivable  accoimt: 

June  16,  19 


Cash  $900.00 

Notes  Receivable  $900.00 

After  posting  we  have: 
Notes  Receivable  Merchandise  Cash 


$900.00 


$900.00 


$900.00  $900.00 


The  Notes  Receivable  account  is  closed,  showing  that  we  are  no 
longer  the  holders  or  possessors  of  notes;  Merchandise  account  shows 
that  we  have  parted  with  goods;  Cash  account  records  the  receipt 
of  money.  Note  that  the  final  result  is  equivalent  to  a  cash  trans- 
action— value  received  for  value  given — so  that  the  fimction  of  the 
Notes  Receivable  account  is  somewhat  similar  to  that  of  a  customer's 
account  which  records  a  sale  on  account.  Both  are  temporary  accounts 
which  disappear  as  soon  as  the  debt  is  paid. 

The  following  transaction  shows  that  we  sometimes  buy  goods, 
giving  in  payment  our  promissory  note: 

June  15,  Bot.  of  S.  Johnson,  50  bbls.  flour  @  $8.00,  on  my  10-day  note. 

Such  notes  are  called  "  Notes  Payable,"  therefore  the  entry  is: 

Mdse.  $400.00 

Notes  Payable  $400 .  00 

When  we  pay  the  note,  the  entry  is: 

Notes  Payable  $400.00 

Cash  $400.00 

The  student  is  cautioned  against  a  common  error.  Notes  Receiv- 
able is  often  confused  with  Notes  Payable.  A  very  good  test  is  to  ask 
yourself  in  every  case:  "  Are  we  to  pay  this  note  at  maturity?  "  If 
we  are,  it  is  always  referred  to  as  Notes  Payable;  all  others  are  Notes 
Receivable.  Obviously,  the  note  which  we  call  Notes  Payable  is  Notes 
Receivable  to  the  payee,  that  is,  to  the  person  to  whom  we  promise 
to  pay  and  vice  versa. 


40  BOOKKEEPING  AND  ACCOUNTING 

Questions 

1.  What  is  a  promissory  note?    Write  the  note  employed  in  the  trans- 
action of  June  15,  page  39. 

2.  Why  are  notes  employed  in  business?    How  do  we  differentiate  between 
Notes  Receivable  and  Notes  Payable? 

3.  How  much  does  R.  Mason  owe  us?    (See  Exercise  12B.)    How  can  you 
tell?    Explain. 

4.  What  does  the  balance  of  our  Notes  Receivable  account  show?    (Exercise 
12B.)    Explain. 

5.  Discuss  question  4  with  respect  to  Notes  Payable.     (Exercise  125.) 

6.  Would  you  prefer  to  sell  "on  account"  or  "on  a  note"?    Why? 

7.  If  a  balance  exists  in  the  Notes  Receivable  account,  must  it  be  a  debit 
or  a  credit  balance?    Why? 

8.  Discuss  Question  7  with  respect  to  Notes  Payable. 

Exercise  12A.    Drill 

1.  Orally  journalize  the  following  transactions: 

a.  Sold  Smith  mdse.  for  cash  ($1,000.00) 

b.  Sold  Smith  mdse.  on  acct.  ($1,000.00) 

c.  Smith  paid  his  acct.  ($1,000.00) 

d.  Sold  Smith  mdse.  on  his  10-day  note  ($100.00) 

e.  Smith  paid  his  note  due  today  ($100.00) 

/.  Sold  Robbins  mdse.  on  his  30-day  note  ($600.00) 
g,  Robbins  paid  his  note  today  ($600.00) 
h.  Sold  Stewart  mdse.  on  his  15-day  note  ($750.00) 
t.  Stewart  paid  his  note  ($750.00) 
j,  Bot.  of  Brown  mdse.  for  cash  ($2,000.00) 
k.  Bot.  of  Brown  mdse.  on  acct.  ($2,000.00) 
I  Paid  Brown  in  full  ($2,000.00) 
m.  Bot.  of  Brown  mdse.  on  my  10-day  note  ($200.00) 
n.  Paid  my  note  favor  of  Brown  ($200.00) 
0.  Bot.  of  Cleveland,  mdse.  on  my  10-day  note  ($1,800.00) 
p.  Paid  my  note  favor  Cleveland  due  today  ($1,800.00) 
q.  Bot.  of  Stowe  &  Co.  on  my  30-day  note,  mdse.  ($2,500.00) 
r.  Paid  Stowe  &  Co.,  note  due  today  ($2,500.00) 

2.  Analyze  the  following  accounts: 

(o)   Notes  Receivable  (6)  Notes  Payable 


$   600.00 
1,000.00 


$1,000.00  $3,000.00 

2,000.00 


$3,000.00 
1,500.00 
2,000.00 


ELEMENTARY  BOOKKEEPING 


41 


3.  Analyze  the  following  accounts: 

(fl)  Notes  Receivable 


19— 

19— 

Oct.  1 

$5,000.00 

Nov.  1 

$5,000.00 

18 

2,750.00 

Dec.  18 

2,760.00 

Dec.  5 

2,000.00 

ih) 


Notes  Payable 


19— 

19— 

Aug.  2 

$4,500.00 

Apr.  10 

$3,300.00 

10 

3,300.00 

June  2 

4,500.00 

Dec.  24 

2,500.00 

Sept.  25 

2,500.00 

Nov.  21 

3,600.00 

Exercise  12B  21 


Journalize  and  post  the  following: 

June    1  F.  D.  Purse  began  business  by  investing  cash,  $1,000.00 

2  Paid  rent  of  store  $60.00,  printing  $15.00,  stationery  $10.00 

4  Bot.  of  B.  Brodie,  on  acct.,  300  bbls.  apples  @  $3.00 

5  Sold  to  R.  Mason,  on  his  10-day  note,  50  bbls.  apples  @  $4.00 

6  Sold  R.  S.  James,  on  his  15-day  note,  100  bbls.  apples  @  $4.00 
8  Sold  W.  Johnson,  on  his  10-day  note,  100  bbls.  apples  @  $4.00 

11    Bot.  of  L.  Landers,  on  my  15-day  note,  50  bbls.  apples  @  $3.00,  and 
1000  bu.  peaches  @  $.60 

13  Bot.  of  Bermuda  Fruit  Co.,  100  crates  onions  @  $1.25,  and  gave 

■  them  my  1-mo.  note,  in  full 

14  Sold  W.  Johnson,  on  his  1-mo.  note,  300  bbls.  apples  @  $4.00,  and 

500  bu.  peaches  @  $.80 

15  Reed,  of  R.  Mason,  cash  in  payment  of  his  note  due  today,  $200.00 
15    Sold  C.  Stewart,  for  cash,  100  crates  onions  @  $1.75 

17    Paid  clerk  hire  $30.00 

17  Mr.  Purse  drew  for  private  use,  cash,  $50.0i 

18  W.  Johnson  paid  his  note  of  6/8,  in  cash,  $400.00 

20  Sold  R.  Mason,  on  his  15-day  note,  500  bu.  peaches  @  $.70  and  260 

bbls.  apples  @  $4.00 

21  R.  S.  James  paid  his  note  due  today,  cash,  $400.00 

26    Paid  my  note  in  favor  of  L.  Landers,  due  today,  cash,  $760.00 

•*  For  additional  exercises,  see  end  of  Part  I. 


42 


BOOKKEEPING  AND  ACCOUNTING 


To  aid  the  student,  we  herewith  show  a  few  of  the  entries  resulting 
from  the  transactions  in  Exercise  12B. 


Notes  Receivable 
Mdse. 


Mdse. 
Notes  Payable 


Cash 
Notes  Receivable 


Notes  Payable 
Cash 


June  5 

Sold  R.  Mason,  on  his 

10-day  note, 

50  bbls.  apples   $4.00 

11 

Bot.  oi  L.  Landers,  on 
my  15-day  note, 
50  bbls.  apples  $3.00 
1000  bu.  peaches  $.60 

15 
R.  Mason  paid  his  note 
of  the  5th  inst. 

26 
Paid  my  note  of  6/11, 
favor  of  L.  Landers 


200 

00 

200 

750 

00 

750 

200 

00 

200 

750 

00 

750 

00 


00 


00 


00 


13.  NOTE  TRANSACTIONS— (Concluded) 

After  selling  goods  to  a  customer  on  account,  he  may  settle  his  booK 
debt  by  giving  us  a  note.  Such  transactions  differ  from  those  discussed 
in  the  previous  section  in  that  there  the  exchange  consisted  of  our 
parting  with  goods  for  a  note,  whereas  we  are  now  to  consider  the 
case  of  selling  goods  "  on  time,"  then  subsequently  receiving  the  note, 
which  is  finally  paid  at  maturity.  The  following  transactions  are 
illustrative: 

July    1    Sold  L.  Garrison,  on  acct.,  100  bbls.  apples  @  $4.00 

10    Reed,  from  L.  Garrison  his  15-day  note  in  fuU  of  acct.  $400.00 
25    L.  Garrison  paid  his  note  of  the  10th  inst.,  in  cash,  $400.00 

The  first  transaction  is  one  with  which  we  are  very  familiar.  It 
results  in: 

July  1, 19— 
L.  Garrison  Sold  on  acct.  $400.00 

Mdse.  100  bbls.  apples  $4.00  $400.00 


ELEMENTARY  BOOKKEEPING 


43 


The  second  entry  will  be  easily  understood: 
10 
Notes  Receivable  Reed,  his  10-day  note  in  full        $400.00 

L.  Garrison  of  acct.  $400.00 

The  final  one  should  also  prove  easy: 
25 
Cash  L.  Garrison  paid  his  note  of        $400.00 

Notes  Receivable         7/10  $400.00 

If  we  post  these  entries  it  will  be  seen  that  the  personal  account 
of  L.  Garrison  and  the  Notes  Receivable  account  served  as  temporary 
accounts,  because  when  the  transaction  is  finally  settled  or  completed 
— value  received  for  value  given — the  Cash  and  Merchandise  accounts 
alone  remain  open : 

L.  Garrison  Merchandise 


July    1    $400.00 


July  10   $400.00 


Julyl     $400.00 


Notes  Receivable 


Cash 


July  10  $400.00 


July  25  $400.00  July  25    $400.00 


A  similar  purchase  will  now  be  illustrated: 

July    2    Bot.  of  T.  Thompson,  on  acct.,  1,000  bu.  oats  @  $.90 

11    Gave  T.  Thompson  my  1-mo.  note  in  full  on  acct.,  $900.00 
Aug.  11    Paid  T.  Thompson,  cash  for  note  of  11th  ult.,  $900.00 

The  Journal  entries,  with  the  customary  explanations  are: 


Mdse. 

T.  Thompson 

July   2 
Bot.  on  acct. 

1,000  bu.  oats    $.90 

900 

00 

900 

00 

T.  Thompson 

Notes  Payable 

11 
Gave  my  1-mo.  note  in 
full  of  acct. 

900 

00 

900 

00 

Notes  Payable 
Cash 

Aug.  11 

Paid  my  note  of  July 

11,    favor   of   T. 

Thompson 

900 

00 

900 

00 

44  BOOKKEEPING  AND  ACCOUNTING 

Questions 

1.  What  is  the  function  of  Brown's  account  in  the  transaction  of  May  3? 
(See  Exercise  13J?.) 

2.  How  is  Brown's  account  affected  by  the  first  transaction  of  May  8? 

3.  How  are  both  accounts  affected  by  the  first  transaction  of  May  18? 

4.  Why  does  a  person  settle  his  account  by  a  note?    Is  this  a  real  settle- 
ment of  the  debt?    Explain. 

5.  Show  that  the  general  rule  for  journalizing  (i.e.,  for  debiting  and  crediting 
accounts)  applies  to  Notes  Receivable  account  and  to  Notes  Payable  account. 

Exercise  ISA.    Drill 

1.  Orally  journalize' the  following  transactions: 

a.  Sold  Robinson  mdse.  on  acct.  ($3,000.00) 

b.  Robinson  paid  cash  in  full  ($3,000.00) 

c.  Sold  Robinson  mdse.  on  acct.  ($3,500.00) 

d.  Reed,  from  Robinson  his  30-day  note  in  full  ($3,500.00) 

e.  Robinson  paid  his  note  due  today  ($3,500.00) 
/.  Sold  mdse.  to  Simpson  on  acct.  ($5,700.00) 

g.  Simpson  gave  us  his  60-day  note  on  acct.  ($5,000.00) 
h.  Simpson  paid  us  cash  to  balance  his  acct.  ($700.00) 
t.  Simpson  paid  his  note  due  today  ($5,000.00) 
j.  Sold  Brommly  mdse.  on  acct.  ($3,500.00) 
k.  Reed,  from  Brommly  his  15-day  note  on  acct.  ($2,000.00) 
I.  Reed,  from  Brommly  his  30-day  note  to  balance  his  acct.  ($1,500.00) 
m.  Reed,  from  Brommly  cash  to  pay  note  due  today  ($2,000.00) 
n.  Brommly  paid  his  note  due  today  ($1,500.00) 
0.  Bot.  of  Jameson  mdse.  on  acct.  ($2,500.00) 
p.  Gave  Jameson  my  30-day  note  in  full  of  acct.  ($2,500.00) 
q.  Bot.  of  Jameson  mdse.  on  acct.  ($3,600.00) 
r.  Gave   Jameson   my   30-day  note  ($2,600.00)  and  balance  in  cash 

($1,000.00),  to  settle  my  account.22 
s.  Bot.  of  Small  &  Small  mdse.  on  acct.  ($2,100.00) 
t  Gave  Small  &  Small  on  acct.  my  30-day  note  ($1,500.00) 
u.  Gave  Small  &  Small  in  full  of  acct.  my  15-day  note  ($600.00) 
V.  Paid  my  30-day  note  favor  Small  &  Small  due  today  ($1,500.00) 
w.  Paid  my  15-day  note  favor  Small  &  Small  ($600.00) 

2.  What  series  of  transactions  resulted  in  the  following  Ledger  accounts? 

(o)     Merchandise  Notes  Receivable 


$950.00 


$1,500.00  $1,600.00 


$1,500.00 


"  Remember  that  debits  and  credits  equal  in  amount  must  result  from  every 
fcransaction. 


ELEMENTARY  BOOKKEEPING 
Notes  Payable  Cash 


45 


950.00 


1,500.00 


(h) 


Merchandise 


19— 

Oct.  3     1,500.00 


James  Rawley 


19— 

Oct.  3     1,500.00 


19— 

Oct.  7    1,500.00 


Notes  Receivable 


19— 

Oct.  7     1,500.00 


19— 

Nov.  7    1,500.00 


Cash 


19— 

Nov.  7  1,500.00 


(c) 


Merchandise 


19— 

June  15  $2,600.00 


Trever  &  Sons 


19— 

June  30  $2,600.00 


June  15  $2,600.00 


Notes  Payable 


19— 

Aug.  30       $2,600.00 


19— 

June  30       $2,600.00 


Cash 


19— 

Aug.  30       $2,600.00 


46  BOOKKEEPING  AND  ACCOUNTING 

3.  Complete  the  explanations  for  the  following  Journal  entries: 


r 


MrU£y: 


2-  <<:^^? 


^A^OC 


//ct; 


//vT^ 


X//ce^if 


2  /AC^C 


/  ^J'c  c<p 


/  -pyTC 


■y^J'a<:?C' 


Z^aaao 


Exercise  13B  2' 

Journalize  and  post  the  following  transactions: 
May  1"    H.  Guither  began  business  by  investing  cash,  $2,000.00  and  1,000  bu. 
oats  worth  $1.00  per  bu. 


23  For  additional  exercises,  see  end  of  Part  I. 

24  Moving  pictures  will  aid  us  here,  as  on  so  many  other  occasions.  What  did 
the  business  receive?  Hence,  Cash  a/c  and  Mdse.  a/c  are  to  be  debited.  One 
soiation  is: 

Cash  $2,000.00 

H.  Guither,  Prop.  $2,000.00 

and 

Mdse.  1,000.00 

H.  Guither,  Prop.  1,000.00 

A  more  popular  entry  follows: 

May  1,  19— 
Investment  of  cash 
and  1000  bu.  oats  @$1.00 


Cash 
Mdse. 
H.  Guither,  Prop. 


2,000 
1,000 

00 
00 

3,000 

00 


Entries  of  this  form  are  known  as  compound  entries.  The  student  should  see 
clearly  that  they  observe  the  fundamental  principle  of  double  entry  bookkeeping, 
in  that  debits  and  credits  are  equal  in  amount. 


ELEMENTARY  BOOKKEEPING 


49 


2  Paid  rent  of  store  $100.00 

3  Bot.  on  acct.,  of  H.  Brown  &  Co.,  800  bu.  oats  @  $1.00 

4  Sold  to  T.  Thompson  &  Son,  on  acct.,  1,000  bu.  oats  @  $1.20 
6    Bot.  postage  stamps  $2,00,  stationery  $6.00 

8    Gave  H.  Brown  &  Co.,  my  10-day  note  in  full  of  acct.,  $800.00 
8    Reed,  from  T.  Thompson  &  Son  their  10-day  note  on  acct.,  $700.00 
10    Paid  clerk's  salary  $15.00 

15  Sold  to  T.  Thompson  &  Son,  200  bu.  oats  @  $1.50,  on  acct. 

16  Reed,  of  T.  Thompson  &  Son  their  30-day  note  for  balance  of  invoice 

of  5/4,  $500.00 

17  Bot.  of  N.  Y.  Trading  Co.,  on  acct.,  100  bbls.  flour  @  $10.00 

18  Paid  my  note  favor  of  H.  Brown  &  Co.,  due  today,  $800.00 

18    Reed,  of  T.  Thompson  &  Son,  in  payment  of  their  note  of  5/8, 

$700.00 
25    Gave  N.  Y.  Trading  Co.,  on  acct.,  my  1-mo.  note  $750.00 
29    Sold  Franklin  Bros.,  for  cash,  600  bu.  oats  @  $1.50  and  100  bbls. 

flour  @  $11.00 


14.  THE  TRIAL  BALANCE 

In  Section  5  the  student  was  shown  how  to  prepare  a  Trial  Balance 
of  Totals.  He  should  now  prepare  such  a  Trial  Balance  from  the  Ledger 
accounts  after  posting  Exercise  13B,  and  his  result  should  be  as  follows: 


K_^/4'<'n^  A^l^gZy^^tt^n^^ 


u-yaa 
Z 

foe 


fe>cc7C 


/2.ao 

7Sa 


/^A7 


^j2. 


z-^7Z 


The  above  Trial  Balance  is  a  summary  of  the  Ledger,  and,  as  we 
know,  is  employed  as  a  test  of  correct  posting.    As  a  summary  of  the 


48  BOOKKEEPING  AND  ACCOUNTING 

accounts,  it  can  be  made  more  useful  by  means  of  slight  changes.  For 
instance,  why  not  omit  the  account  of  H.  Brown  &  Co.?  If  we  do  so, 
the  total  of  each  side  becomes  $11,872.00.  Cash  account  shows  that  we 
received  $4,700.00  and  spent  $922.00.  But  the  proprietor  is  more  inter- 
ested in  the  balance  on  hand,  that  is,  in  $3,778.00.  Observe  carefully 
that  this  balance  may  be  obtained  by  deducting  $922.00  from  both 
sides  of  the  Cash  account,  for  if  we  do  so  the  debit  side  becomes 
$3,778.00  and  the  credit  side  zero.  After  this  double  deduction,  the 
totals  of  the  debit  and  of  the  credit  columns  will  be  $10,950.00,  still 
equal  to  each  other.  How  is  it  that  the  totals  are  still  equal?  The  student 
may  have  forgotten  an  axiom  of  his  mathematics  upon  which  the  opera- 
tion is  based,  namely,  "  Equals  subtracted  from  equals  give  equals." 
A  Trial  Balance  of  such  differences  or  balances  is  called  the  Trial 
Balance,  and  it  is  the  form  almost  universally  employed.  Such  an 
exhibit  based  on  the  Ledger  of  Exercise  ISB  follows: 


Trial  Balance, 

May  31,  19— 

H.  Guither,  Prop. 

$3,000.00 

Cash 

$3,778.00 

Mdse. 

700.00 

Expense 

122.00 

T.  Thompson  &  Son 

300.00 

Notes  Payable 

750.00 

Notes  Receivable 

500.00 

N.  Y.  Trading  Co. 

250.00 

$4,700.00 

$4,700.00 

Questions 

1.  What  is  a  Trial  Balance?    What  is  its  function? 

2.  Explain  upon  what  principles  of  mathematics  it  is  based. 

3.  What  do  the  following  accounts  appearing  in  the  above  Trial  Balance 
show? 

(a)  T.  Thompson  &  Son,  (6)  N.  Y.  Trading  Co,  (c)  Notes    Receivable, 
{d)  Notes  Payable. 

4.  What  kind  of  errors  would  a  Trial  Balance  not  disclose? 


ELEMENTARY  BOOKKEEPING 


49 


Exercise  14A.    Drill 

1.  Copy  the  following  form  and  fill  in  the  last  two  money  columns  so 
to  obtain  a  Trial  Balance: 


T    p  tt 

Titles  of  the  Ledger 

Dr. 

Cr. 

Dr. 

Cr. 

Accts. 

Total 

Total 

Balance 

Balance 

Frank  R.  Crane, 

Capital 

120 

00 

4,000 

00 

Cash 

13,600 

00 

10,083 

00 

Mdse. 

6,200 

00 

6,760 

00 

Expense 

675 

00 

12 

00 

Thomas  Browne 

2,500 

00 

1,000 

00 

Rawlins  &  Sons 

800 

00 

800 

00 

Smith  &  Foley 

1,400 

00 

Lane  &  Court 

920 

00 

350 

00 

Smith  &  Smith 

1,040 

00 

800 

00 

Notes  Receivable 

3,000 

00 

1,200 

00 

James  Talcott 

2,650 

00 

5,500 

00 

Smiley  &  Co. 

1,300 

00 

2,000 

00 

Babcock  &  Co. 

700 

00 

Baff  &  Tramm 

250 

00 

250 

00 

Notes  Payable 

1,700 

00 

2,700 

00 

36,155 

00 

36,155 

00 

2.  Tell  all  you  can  about  the  following  accounts  included  above: 

a.  The  Proprietor's  account 
6.  Cash 

c.  Mdse. 

d.  Expense 

e.  Browne's  account 

f.  Rawlin's  account.     (Be  careful!) 

g.  Smith  &  Foley's  account 
h.  Notes  Receivable  account 
I.  Talcott's  account 

j.  Baff  &  Tramm's  account 
A:.  Notes  Payable 

**  This  column  indicates  the  page  (folio)  in  the  Ledger  on  which  the  respective 
accounts  appear.     *'L.  F."  is  the  abbreviation  for  Ledger  foUo. 


50 


BOOKKEEPING  AND  ACCOUNTING 


3.  Prepare  a  Trial  Balance  from  the  following  "T"  accounts: 

Cash  "  Student,"  Proprietor 


$5,000.00 

$160.00 

$15.00 

$5,000.00 

200.00 

15.00 

7.50 

600.00 

210.00 

100.00 

350.00 

65.00 

1 
Expense 

Merchandise 

160.00 

210.00 

65.00 

750.00 

240.00 

1,230.00 

710.00 

900.00 

485.00 

960.00 

82.00 

7.50 

Notes  Receivable 

1 
Notes  Payable 

500.00 

500.00 

1,000.00 

500.00 

H.  Jameson 

R.  A.  Franke 

1,000.00 

210.00 

350.00 

750.00 

210.00 

1,230.00 

C.  T.  Clynne 

Amos  Trickert 

900.00 

65.00 
82.00 

65.00 

H.  Levey  &  Co. 

Seymour  Kaley 

240.00 

100.00 

710.00 

500.00 

485.00 

500.00 

960.00 

200.00 

Exercise  14B^^ 

Prepare  a  Trial  Balance  from  Exercise  12B. 

'•  For  additional  exercises,  see  end  of  Part  I. 


ELEMENTARY  BOOKKEEPING  51 


16.  THE  PROGRESS  OF  THE  BUSINESS " 

One  of  the  principal  reasons  for  keeping  books  is  that  we  are  thereby 
able  to  learn  how  the  business  is  getting  along,  that  is,  whether  it  is 
being  profitably  conducted  or  not. 

We  shall  employ  the  transactions  given  in  Exercise  12B  as  a  basis 
for  discussion.  The  Merchandise  account  shows  that  we  bought 
goods  costing  $1,775.00  (debit  side  of  Merchandise  account)  and  sold 
them  for  $4,125.00,  thereby  gaining  $2,350.00.  But  $2,350.00  does  not 
represent  our  true  profit,  as  we  incurred  certain  expenses  or  losses, 
shown  by  Expense  account.  Deducting  the  losses  of  $115.00,  we  obtain 
a  net  profit  of  $2,235.00. 

In  Exercise  13B  we  might  proceed  similarly.  We  commenced 
with  goods  worth  $1,000.00  which  were  invested  by  H.  Guither,  and 
purchased  $1,800.00,  thereby  arriving  at  the  total  shown  on  the  debit 
side  of  Merchandise  account  ($2,800.00).  Goods  costing  us  $2,800.00 
were  sold  for  $3,500.00,  or  at  a  profit  of  $700.00.  Deducting  the  expenses 
of  $122.00,  we  find  the  net  profit  to  be  $578.00.  A  simple  form,  often 
employed,  follows: 

Profit  and  Loss  Statement  of  H.  Guither 

May,  19— 

Merchandise  on  hand  at  beginning  of 

period $1,000.00 

Purchases 1,800.00 

Cost  of  merchandise  sold $2,800 .  00 

Proceeds  of  sales $3,500.00 

Profit  on  Merchandise,  carried  down  ^s . ,       700 .  00 

S3,500.00         $3,500.00 

Profit  on  Merchandise,  brought  down $700 .  00 

Loss  shown  by  Expense  account $122.00 

Net  Profit  28 578.00 

$700.00  700.00 


"  See  footnote,  page  19. 

28  Such  items,  including  the  figures,  frequently  appear  in  red  ink.  They  repre- 
sent differences  added  to  the  smaller  side.  Single  and  double  lines  are  also  in 
red  ink. 


52 


BOOKKEEPING  AND  ACCOUNTING 


Questions 

1.  How  can  you  find  the  profit  on  merchandise? 

2.  How  do  you  ascertain  the  net  profit? 

3.  Under  what  conditions  would  a  net  loss  exist? 

4.  What  is  a  Profit  and  Loss  Statement? 

5.  Explain  how  the  progress  of  the  business  is  determined  by  means  ol 
such  a  statement. 

Exercise  15A.    Drill 

1.  Bought  goods  costing  $3,600.00  and  sold  them  for  $4,100.00.    Expenses 
for  the  period  amounted  to  $200.00.     Find  the  net  profit. 

2.  Find  the  net  profit  based  upon  the  following  accounts  taken  from  the 
Ledger  of  H.  C.  Janeway: 

Merchandise  Expense 


$1,000.00 

$260.00 

800.00 

570.00 

3,210.00 

450.00 

750.00 

1,200.00 

350.00 

770.00 

1,400.00 

1,000.00 

800.00 

$108.00 

52.00 

103.00 


$13.00 


3.  Find  the  net  profit  or  the  net  loss  in  the  following  case: 


Merchandise 

$1,810.00 

$   500.00 

575.00 

1,250.00 

1,296.00 

800.00 

1,000.00 

Expense 

$125.00 

34.00 

9.50 

$12.00 

4.  lind  the  net  loss  in  the  following  case: 
Merchandise 


Expense 


$1,400.00 

1,000.00 

250.00 

$   380.00 

1,510.00 

725.00 

$75.00 

15.00 

3.00 


5.  Find  the  net  loss  based  upon  the  Trial  Balance  of  Totals  of  Problem 
1,  Exercise  14A,  page  49. 

Exercise  15B  " 
Prepare  a  Profit  and  Loss  Statement  for  Mr.  F.  D.  Purse,  Exercise  12B 

2'  For  additional  exercises,  see  end  of  Part  I. 


ELEMENTARY  BOOKKEEPING  53 

16.  THE  CONDITION  OF  THE  BUSINESS »» 

We  have  already  learned  how  to  test  the  progress  of  the  business. 
It  remains  to  be  shown  how  to  find  the  condition,  that  is,  how  much 
the  business  is  worth. 

A  very  simple  way  consists  of  adding  the  net  profit  to  the  pro- 
prietor's net  investment.  In  the  case  of  H.  Guither,  the  original 
investment  of  $3,000.00  was  neither  increased  nor  diminished,  so  the 
net  investment  is  $3,000.00.  Add  to  this  the  net  profit  of  $578.00 
shown  by  the  Profit  &  Loss  Statement,  and  we  obtain  $3,578.00  as  his 
net  capital  or  present  worth. 

The  usual  method  of  obtaining  the  present  worth  is  not  quite 
so  simple.  It  is  customary  to  list  everything  of  value  owned  by  the 
business — its  assets — and  also  to  list  everything  it  owes — its  liabilities. 
The  difference  between  what  the  business  owns  (o-w-n-s)  and  what 
it  owes  (o-w-e-s) — the  excess  of  its  assets  over  its  liabilities — is  the 
present  worth  or  net  capital. 

Let  us  consider  the  business  of  H.  Guither  (page  47).  The  Trial 
Balance  shows  that  he  has  cash  amounting  to  $3,778.00,  that  T.  Thomp- 
son &  Son  owe  him  $300.00,  and  that  he  holds  written  promises  to  pay 
him  amounting  to  $500.00.  The  total  of  those  assets  is  $4,578.00. 
His  habihties  consist  of  his  outstanding  promises  to  pay  others.  Notes 
Payable,  $750,00,  and  the  balance  due  the  N.  Y.  Trading  Co.,  $250.00, 
a  total  of  $1,000.00.  $4,578.00  less  $1,000.00  shows  a  net  capital  of 
$3,578.00,  just  as  in  the  first  and  simpler  case.    A  common  form  follows: 

Statement  of  Assets  and  Liabilities  of  H.  Guither 

May  31,  19— 

Cash $3,778.00 

T.  Thompson  &  Son 300.00 

Notes  Receivable 500.00 

Total  assets $4,578.00 

Notes  Payable $760.00 

N.  Y.  Trading  Oo 250.00 

Total  Liabilities 1,000.00 

*  Present  worth  " 3,578.00 

$4,578.00  $4,578.00 

'•>  See  footnote,  page  19. 

"  In  this  text,  all  items  starred,  but  not  specifically  explained  in  footnotes,  indi- 
cate that  red  ink  is  employed.  The  student  should  know,  however,  that  business 
men  no  longer  use  red  ink  as  frequently  as  they  once  did.  Nevertheless,  for  th© 
present,  the  reader  should  continue  to  empldy  red  ink. 


64  BOOKKEEPING  AND  ACCOUNTING 

The  first  method  of  determining  the  net  capital,  that  is,  by  adding 
the  net  profit  to  the  net  investment,  is  sometimes  regarded  as  a  proof 
of  the  correctness  of  this  item  as  shown  by  the  Statement  of  Assets  and 
Liabihties.  Often,  too,  the  proof  is  incorporated  in  this  Statement. 
If  this  is  done,  then  the  form  becomes: 

Statement  of  Assets  and  Liabilities  of  H.  Guither 

May  31,  19— 

Cash $3,778.00 

T.  Thompson  &  Son 300.00 

Notes  Receivable 500.00 

Total  Assets $4,578.00 

Notes  Payable $750.00 

N.  Y.  Trading  Go 250.00 

Total  Liabilities 1,000.00 

Net  Capital: 

H.  Guither's  net  in- 
vestment  $3,000 .  00 

Plus  Net  Profit...       578.00 

♦Net  Capital 3,578.00 

$4,578.00         $4,578.00 


The  student  will  find  it  easier  to  remember  the  main  points  of  this 
and  of  the  preceding  section,  if  he  will  famiharize  himself  with  the 
following  formulae: 

1.  Profits  minus  losses  equal  net  profit. 

P-L=N.P. 

2.  Net  investment  plus  net  profit  equals  net  capital. 

N.  L+N.  P.  =  N.  C. 

3.  Ass'^^s  minus  liabilities  equal  net  capital. 

A.-L.  =  N.  C. 

Questions 

1.  Define:  (a)  assets,  (b)  liabilities,  (c)  net  capital. 

2.  How  do  you  ascertain  the  net  capital?  Can  you  test  its  correctness? 
Explain. 

3.  What  is  the  object  of  finding  the  present  worth  or  net  capital? 


ELEMENTARY  BOOKKEEPING 


65 


4.  Derive  the  following  formulae: 

(a)  For  the  N.  L.,  when  the  losses  are  greater  than  the  profits. 

(b)  For  the  N.  C,  in  such  a  case. 

(c)  For  the  N.  P.,  when  the  N.  I.  and  the  N.  C.  are  known. 

Exercise  16A.    Drill 

1.  In  connection  with  Problem  2,  Exercise  15A,  page  52,  determine  tlw 
net  capital  of  the  proprietor: 

H.  C.  Janeway,  Capital 


$200.00 


$2,500.00 
100.00 


2.  The  other  accounts  in  Mr.  Janeway's  Ledger  were: 

Cash  Notes  Receivable 


$2,500.00 

$   200.00 

100.00 

108.00 

13.00 

800.00 

570.00 

103.00 

1,500.00 

52.00 

1,000.00 

500.00 

",200.00 

1,000.00 

$260.00 


H.  Long  &  Bro. 


570.00 

570.00 

770.00 

1,000.00 

1,400.00 

Smith  &  Smith 

450.00 

$1,500.00 

1,200.00 

1,200.00 

350.00 

1,000.00 

800.00 

Notes  Payable 


F.  D.  Pinsan 


500.00 


500.00 
1,500.00 


1,000.00 


Smythe  &  Co. 


$   500.00 
1,500.00 
1,000.00 

$3,210.00 
750.00 

Prepare  a  Statement  of  Assets  and  Liabilities. 


56  BOOKKEEPING  AND  ACCOUNTING 

3.  Find  the  net  capital  of  Frank  R.  Crane  (Problem  1,  Exercise  144,  page 
49),  by  means  of  a  Statement  of  Assets  and  Liabilities. 

4.  Prove  the  correctness  of  Mr.  Crane's  net  capital  by  emplo3dng  the  net 
loss  found  for  Problem  5,  Exercise  15A,  page  52. 

5.  Find  the  net  profit  or  net  loss,  and  the  net  capital  for  Problem  3,  Exer- 
cise 14A,  page  50. 

Exercise  16B« 

Prepare  a  Statement  of  Assets  and  Liabilities  for  Mr.  F.  D.  Purse,  Exer- 
cise 12B,  page  4L 

17.  DISCOUNT  ON  PURCHASES 

We  very  frequently  buy  goods  with  the  privilege  of  paying  within 
a  certain  period,  and  with  the  further  privilege  of  deducting  a  certain 
discount  for  earlier  settlement.    Examples  of  such  transactions  are: 

Aug.  1    Bot.  of  American  Woolen  Co.,  2/30,  n/60, 150  yds.  broadcloth  @  $2.00 
Aug.  3    Bot.  of  A.  C.  Cotton  Co.,  2/60,  n/90,  1,500  yds.  prints  @  6c. 

"  2/30,  n/60  "  signifies  that  if  paid  within  thirty  days  we  may 
deduct  two  per  cent  from  the  invoice,  otherwise  we  must  pay  within 
sixty  days  the  full  (net)  amount. ^^  *'  2/60,  n/90  "  means  that  we 
are  entitled  to  two  per  cent  if  we  settle  within  sixty  days,  or  that  we 
may  wait  ninety  days  from  the  date  of  the  invoice,  at  the  end  of  which 
period  we  must  pay  the  full  amount  of  the  bill. 

The  Journal  entries  follow:  i 

Aug.  1,  19— 
Mdse.  Bot.  on  acct.,^*  2/30,  n/60,  $300 .  00 

American  Woolen  Co.  150  yds.  broadcloth  @  $2.00  $800.00 

3, 
Mdse.  Bot.,  2/60,  n/90,  90.00 

A.  C.  Cotton  Co.  1,500  yds.  prints       @  6c.  90.00  ^ 

We  must  now  consider  the  entry  required  for  the  following  trans- 
action: 

Aug.  29    Paid  American  Woolen  Co.,  cash  in  full  of  invoice  of  Aug.  1,  less 
2%,  $294.00 

As  we  gave  $294.00  in  cash,  Cash  account  must  be  credited  for 
$294.00.    This  amount  was  accepted  by  the  American  Woolen  Co.  as 

"  For  additional  exercises,  see  end  of  Part  I. 

"  See  page  363. 

"  "On  acct."  is  not  essential.    See  the  entry  of  the  3rd  inst 


ELEMENTARY  BOOKKEEPING  57 

the  equivalent  of  $300.00;  therefore,  as  we  owe  them  nothing  now 
and  as  we  received  back  their  $300.00  claim  against  us,  their  account 
must  be  closed  by  charging  it  with  $300.00.  Thus  far  we  have  a  debit 
of  $300.00  and  a  credit  of  $294.00,  and  we  must  find  some  appropri- 
ate account  to  credit  for  an  additional  $6.00,  in  order  to  observe  the 
fundamental  principle  of  our  subject.  At  this  point,  the  solution 
might  be  written  thus: 

American  Woolen  Co.        $300 .  00 

Cash  $294.00 

?  6.00 

To  which  account  shall  we  credit  the  $6.00?  What  did  we  give? 
We  gave  the  use  of  money;  in  this  case,  we  gave  $294.00  thirty  days 
ahead  of  time.  Such  use  of  money  is  usually  called  interest  when 
added  and  discount  when  deducted.  To  differentiate  this  particular 
kind  of  discount  from  others  to  be  studied  subsequently,  we  call  it 
Discount  on  Purchases.  Hence  we  may  substitute  for  the  interroga- 
tion mark  (?)  in  the  above  entry,  "  use  of  our  money  ahead  of  time," 
or,  more  practically  and  simply,  what  we  may  regard  as  a  synonym, 
"  Discount  on  Purchases."    The  complete  entry  becomes: 


Aug.  29,  19— 

/.^rican  Woolen  Co. 

Paid  invoice  of  8/1, 

$300.00 

Cash 

less  2% 

$294.00 

Discount  on  Purchases 

6.00 

If  we  paid  the  A.  C.  Cotton  Co.  on  September  30,  we  would  deduct 
two  per  cent  of  $90.00,  and  make  the  following  entry: 

Sept.  30,  19— 
A.  C.  Cotton  Co.  Paid  invoice  of  8/3,  $90.00 

Cash  less  2%  $88.20 

Discount  on  Purchases  1 .  80 

Observe  that  as  a  result  of  these  two  transactions  we  saved  $7.80, 
that  the  items  appear  on  the  credit  side  of  the  Discount  on  Purchases 
account,  and  that  they  represent  a  profit  to  the  business.  A  good  way 
to  remember  that  items  of  this  kind,  appearing  on  the  credit  side 
of  such  account,  are  profits,  is  to  use  the  Expense  account  as  a  sort  of 
touchstone.  Expense  is  a  loss  to  the  business  and  always  has  a  debit 
balance;  accounts  like  Expense  account,  having  debit  balances  are 
likewise  losses;  if  they  have  a  credit  balance,  hke  the  Discount  on 
Purchases  account  in  question,  they  indicate  a  profit. 


68  BOOKKEEPING  AND  ACCOUNTING 

Questions 

1.  Why  do  we  prepay  our  purchases? 

2.  What  per  cent  per  year  do  we  make  when  we  avail  ourselves  of  the 
following  terms:  "  2/10,  n/30,"  and  deduct  2%  at  the  expiration  of  10  days? 

3.  Assume  that  money  at  interest  is  worth  6%  per  annum.  How  much 
better  for  us  is  it  to  deduct  the  2%  in  problem  2,  above,  than  to  wait  30  days 
before  settling  for  the  purchase? 

4.  Show  that  the  general  rule  for  crediting  accounts,  namely,  "  credit 
appropriately  named  accounts  whenever  the  business  gives  anything,"  applies 
to  Discount  on  Purchases  account. 

5.  Why  is  the  Discount  on  Purchases  account  a  profit  to  the  business? 

Exercise  17A.    Drill 
1.  Orally  journahze  the  following  transactions: 

a.  On  Apr.  6,  bot.  of  Brown,  mdse,  SI, 000.00,  terms  1/10,  n/30 


b.  Paid  Brown  on  Apr.  16,  cash  in  full,  $ 

c.  May  5,  bot.  of  Bailey,  mdse.  2/10,  n/30,  $1,500.00 

d.  May  14,  paid  Bailey  cash  in  full  of  invoice  $- 


e.  On  Sept.  5,  bot.  mdse.  from  Plunkett  &  Co.,  2/10,  n/30,  $1,800.00 

/.  Oct.  4,  paid  Plunkett  &  Co.  cash  in  full,  $ 

g.  Mar.  29,  purchased  mdse.  from  Townsend  &  Trumm,  2/10,  1/30, 

n/60,  $3,000.00 

h.  Paid  Townsend  &  Trumm  on  Apr.  27,  cash  in  full,  $ 

i.  If  we  had  paid  Townsend  &  Trumm  on  Apr.  7,  what  entry? 

j.  Had  we  not  paid  Townsend  &  Trumm  until  May  27,  what  entry? 

k.  On  Apr.  26,  paid  Smith  &  Co.  cash  in  full  for  invoice  of  Apr.  16, 

terms  2/10,  n/30,  $1,960.00.    What  was  the  amount  of  the  invoice? 
I.  $3,430.00  paid  an  invoice  bought  10  days  earUer,  terms  2/10,  n/30. 
What  was  the  amount  of  the  invoice? 

2.  Supply  probable  explanations  for  the  following  Journal  entries: 
a. 


5. 


c. 


Nov.  5 

Thos.  Fraille 

$400.00 

Cash 

$392.00 

Dis.  on  Purchases 

8.00 

Sept.  16 

Smith  &  Brown 

1,200.00 

Cash 

1,188.00 

Dis.  on  Purchases 

12.00 

Date 

Creditor's  name 

Cash 

Dis.  on  Purchases 

ELEMENTARY  BOOKKEEPING 


59 


3.  Analyze  the  following  accounts: 

(o)    Merchandise 

Bamum  &  Co. 

$1,000.00 

$3,500.00 

$3,500.00 

3,500.00 

1,600.00 

2,400.00 

2,400.00 

1,600.00 

1,600.00 

1,600.00 

Cash 


Discount  on  Purchases 


$1,000.00 
3,500.00 
1.568.00 


32.00 


(b)               Merchandise 

May  8  2,000.00 
18   1,500.00 

June  14  1,500.00 
16   1,800.00 

Tracy  &  Fee 

May  14 

2,000.00 

May    8 

2,000.00 

June  17 

1,500.00 

18 

1,500.00 

26 

1,800.00 

June  14 

1,500.00 

16 

1,800.00 

Cash 


Discount  on  Purchases 


May  14   1,960.00 

June  17   1,500.00 

26   1,764.00 


May  14 
June  26 


40.00 
36.00 


Exercise  17B »» 


Journalize  the  following  transactions: 

June    1  John  Master  began  business  by  investing  cash  $3,000.00 

2  Paid  rent  of  store  $75.00 

3  Bot.  of  R.  Smith,  2/10,  n/30,  mdse.  $600.00 

4  Bot.  of  John  Jones  &  Co.,  2/10,  n/30,  mdse.  $1,000.00 

5  Bot.  of  T.  Simpson,  2/10,  n/30,  mdse.  $1,500.00 

6  Sold  John  Tate  for  cash,  mdse.  $1,000.00.    Paid  salaries,  $20.00,  cash 

8  Bot.  of  R.  Smith,  2/10,  n/30,  mdse.  $800.00 

9  Paid  R.  Smith,  on  acct.  $500.00 

10  Bot.  of  John  Jones  &  Co.,  2/10,  n/30,  mdse.  $1,000.00 

11  Sold  to  T.  Jackson,  for  cash,  mdse.  $2,500.00 

"  For  additional  exercises,  see  end  of  Part  I. 


60  BOOKKEEPING  AND  ACCOUNTING 

12  Bot.  of  R.  Smith,  2/10,  n/30,  mdse.  $1,200.00 

13  Paid  R.  Smith,  cash  in  full  of  invoice  of  6/3,  less  2%,  $588.00.    Paid 

salary  $20.00 

14  Paid  John  Jones  &  Co.,  cash  in  full  of  invoice  of  6/4,  less  2%,  $980.00 

15  Paid  T.  Simpson,  cash  in  full  of  invoice  of  6/5,  less  2%,  $1,470.00 


18.  DISCOUNT  ON  SALES 

We  often  sell  goods  to  customers,  giving  them  the  privilege  of  pay- 
ing at  some  future  time,  or,  by  paying  before  the  expiration  of  such  a 
period,  to  deduct  a  discount.  Suppose  that  we  sold  Franklin  &  Lyon 
goods  invoiced  at  $1,000.00,  on  August  5,  the  terms  being  2/10,  n/30, 
and  that  they  paid  on  August  15.  In  this  case  we  would  receive 
$980.00  in  full  settlement.  We  would  also  receive  the  use  of  money 
ahead  of  time,  and  hence  we  must  debit  some  discount  account.  As 
this  was  an  allowance  on  sales,  it  is  called  Discount  on  Sales  account, 
and  we  obtain  the  following  entry: 

Aug.  15, 19— 

Cash                            Reed,  payment  for  Inv.  $980 .  00 

Discount  on  Sales           of  8/5,  less  2%  20 .  00 

Franklin  &  Lyon  $1 ,000 .  00 

The  student  should  note  that  Discount  on  Sales  account  is  a  loss  to 
us,  and  that  its  balance  appears  on  the  debit  side  of  the  account. 

Questions 

1.  What  is  meant  by  terms  "  2/10,  n/30  "  and  by  "  1/30,  n/60  "? 

*       2.  Why  do  customers  prepay  our  sales  to  them? 

3.  Is  Discount  on  Sales  account  a  profit  or  a  loss  to  the  business?  Explain 
fully. 

4.  Distinguish  between  discount  on  sales  and  discount  on  purchases? 

5.  Show  that  the  general  rule  for  debiting  accounts  applies  to  Discount  on 
Sales  account? 

Exercise  18A.    Drill 

1.  Orally  journalize  the  following  transactions: 

o.  On  Apr.  6,  sold  Brown,  mdse.  $1,000.00,  terms  1/10,  n/30 

b.  Reed,  from  Brown  on  Apr.  16,  cash  in  full,  $ 

c.  May  5,  sold  Bailey,  mdse.  2/10,  n/30,  $1,500.00 

d.  May  15,  reed,  from  Bailey,  cash  in  full  of  invoice  $- 


c.  On  Sept.  6,  sold  mdse.  to  Plunkett  &  Co.,  2/10,  n/30,  $1,800.00 


ELEMENTARY  6OOKKEEPIN6 


61 


/.  Oct.  4,  reed,  from  Plunkett  &  Co.  cash  in  full,  $ 

g.  March  29,  sold  mdse.  to  Townsend  &  Trumm,  2/10,  1/30,  n/60, 

$3,000.00 
h.  Reed,  from  Townsend  &  Tnrnim  on  Apr.  27,  cash  in  full,  $ 
i.  If  Townsend  &  Trumm  had  paid  us  on  Apr.  7,  what  entry? 
j.  Had  Townsend  &  Trumm  not  paid  us  until  May  26,  what  entry? 
k.  On  Apr.  26,  received  from  Smith  &  Co.  cash  in  full  for  invoice  of  Apr. 

16,  terms  2/10,  n/30,  $1,960.00.    What  was  the  amount  of  the 

invoice? 
L  $3,430.00  paid  an  invoice  bought  10  days  earlier,  terms  2/10,  n/30. 

What  was  the  amount  of  the  invoice? 


2.  Supply  probable  explanations  for  the  following  Journal  entries: 
Oct.  13 


$2,500.00 


Cash 

Discount  on  Sales 

Frank  M.  Manning 

$2,450.00 
50.00 

May  3 
Cash 

Discount  on  Sales 
Hildredth  &  Sons 

1,663.20 
16.80 

Dec.  11 
Cash 

Discount  on  Sales 

Swift  &  Thorpe 

1,680.00 


3.  Analyze  the  following  accounts: 
(a)  Merchandise 


$1,800.00 

525.00 

2,000.00 

1,000.00 


Cash 


$525.00 

1,764.00 

990.00 


H.  H.  Hempstead 


$1,800.00 
2,000.00 
1,000.00 

1,800.00 
1,000.00 

Discount  on  Sales 


36.00 
10.00 


62  BOOKKEEPING  AND  ACCOUNTING 

(6)  Merchandise  Cash 


Apr.    3      100.00 

Apr.  21     300.00 

19    1,700.00 

May  191,500.00 

May   3      600.00 

31    650.00 

June    6   2,400.00 

Apr.  21  300.00 
May  28  1,470.00 
July  29     650.00 


Apr.  3    $100.00 

19    1,666.00 

July    1      600.00 


Marvin  Long 


Lane  &  Lane 


Apr.  19    1,700.00 
July    1      600.00 

Apr.  9 
May  3 
June  6 

1,700.00 

600.00 

2,400.00 

May  19    1,500.00 
31       650.00 


May  28    1,500.00 
July  29      650.00 


Discount  on  Sales 


Discount  on  Purchases 


May  28        30.00 


Apr.  19        34.00 


Exercise  18B  ^s 


Journalize  the  following  transactions: 

June    1  Frank  Collins  began  business  by  investing  cash  $2,500 .  00 

2  Paid  rent  of  store  $50.00 

3  Bot.  of  Jack  Sweet,  2/10,  n/30,  mdse.  $3,000.00 

4  Sold  to  John  Brown,  2/10,  n/30,  mdse.  $1,000.00 

5  Bot.  of  Jones  &  Jackson,  on  acct.,  mdse.  $2,500.00 

6  Sold  to  Young  Bros.,  2/10,  n/30,  mdse.  $800.00.    Sold  to  T.  Smithson, 

2/10,  n/30,  mdse.  $1,200.00.    Paid  salary  $15.00 

8  Gave  Jones  &  Jackson,  $500.00,  cash,  on  acct. 

10  Mr.  Collins  took  mdse.  for  private  use  $15.00 

12  Sold  to  H.  Stern,  2/10,  n/30,  mdse  $600.00 

13  Paid  salary  $15.00 

14  Reed,  from  John  Brown,  cash  in  full  of  invoice  of  6/4,  less  2%,  $980 
'6  Reed,  from  Young  Bros.,  cash  in  full  of  invoice  of  6/6,  less  2%,  $784 

Reed,  from  T.  Smithson,  cash  in  full  of  inv.  of  6/6,  less  2%,  $1,176.00 


'^  For  additional  exercises,  see  end  of  Part  I. 


ELEMENTARY  BOOKKEEPING  63 


19.  DISCOUNT  ON  NOTES 

One  reason  why  we  take  promissory  notes  from  our  customers  is 
because  we  may  be  able  to  sell  them  to,  or,  as  we  say,  "  discount  them  " 
at,  the  bank.  Assume  that  on  April  4,  we  received  a  sixty-day  note 
of  $1,000.00  from  a  customer  and  that  on  April  16,  we  discounted  it  at 
our  bank  "  at  six  per  cent."  On  April  4,  we  debited  Notes  Receivable 
account  but  on  the  16th  we  credited  the  account."  Why  did  we  dis- 
pose of  the  note?  Because  we  received  money  for  it,  in  this  case 
$992.00  ($1,000.00  less  48  days  discount  @  6%  on  $1,000.00  or  less 
$8.00).  As  we  received  the  use  of  money — the  bank  paid  us  on  April 
16,  so  that  we  did  not  have  to  wait  until  maturity,  June  3 — we  must 
debit  some  discount  account.  We  shall  call  this  account  Discount 
on  Notes,  though  in  our  later  studies  we  may  modify  this  term  as  we 
may  also  modify  the  following  entry: 

Aug.  16,  19— 

Cash  Discounted  R.  Brown's  note  $992.00 

Discount  on  Notes       of  4/4,  in  our  favor,  less  8 .  GO 

Notes  Receivable      48  days'  discount  $1,000.00 

In  the  Metropolitan  district,  and  throughout  the  large  commercial 
and  industrial  centers,  there  is  an  increasing  tendency  to  borrow  money 
not  by  discounting  Notes  Receivable,  but  by  what  is  known  as  "  selhng 
single  name  paper."  If  we  wished  to  raise  $5,000.00  we  might  borrow 
it  from  our  bank,  offering,  say,  a  four-months'  note,  or  sell  such  a  note 
to  a  note  broker  who  would  dispose  of  it  "  on  the  Street "  or  through 
other  channels.     The  form  of  such  a  note,  without  the  indorsement,  is: 


MWlBttWMIWIWJ>!AW;iga>^^ 


?/j^ 


v?l/^xgt-g.o&X^^^^^^.^ 


■?/.  /^,  ■%...Ji^,y,S-r^^--'--'^^''<^^^-^^-^ 


ragtawBWYmarwsfhgia^^ 


^  Contingent  liabilities  (see  "Elements  of  Accounting,"  pp.  29-30)  are  purposely 
avoided  here- 


64  BOOKKEEPING  AND  ACCOUNTING 

This  note  would  be,  almost  universally,  indorsed  "  in  blank'*: 


Or,  though  very  rarely,  it  would  be  "  indorsed  in  full",   i.e.,  it  would 
designate  to  whom  it  had  been  transferred: 


aajAWA!AWWM!A!Wii8AlWi^^ 


1 


■/ JSJ^ 


(^^<^i4ii«4£^'^^<»«'?<5i<?^i<^^^<^5i«^ 


^^J^y^cJc. 


rr*'t*'r>^*'*S'S*if!*'n*!*tnnfffi*!nf!n*fn 


^^.^»'t^^-^ 


ELEMENTARY  BOOKKEEPING  65 

If  we  dispose  of  it  to  our  bank,  at  a  discount  of  five  per  cent,  the 
entry  is: 

May  1,  19— 
Cash  Discounted  our  4-mo.  note  $4,914 .  58 

Discount  on  Notes       at  our  bank,  @  5%  85.42 

Notes  Payable  $5,000.00 

If  the  same  note  has  been  "  sold  "  to  a  broker,  the  explanation 
accompanying  the  entry  would  clearly  indicate  the  fact: 

May  1,  19— 
Cash  Sold  our  4-mo.  note  to  Amer.       $4,914 .  58 

Discount  on  Notes     Note  Brokerage  Co.,  less  5%  85.42 

Notes  Payable  $5,000.00 

Questions 

1.  Would  you  prefer  to  sell  on  account  or  on  a  30-day  note?    Explain. 

2.  Differentiate  between  discount  on  notes  and  discount  on  sales. 

3.  Of  what  advantage  is  it  to  hold  a  note  received  from  a  customer  till 
maturity  instead  of  discounting  it? 

4.  How  does  an  ordinary  promissory  note  received  from  a  customer  differ 
from  single  name  paper? 

5.  Why  must  promissory  notes  be  indorsed  before  they  are  transferred 
to  others? 

6.  You  have  learned  that  notes  receivable  may  either  be  held  by  us  until 
maturity  and  then  settled  by  the  maker  who  pays  us  in  cancellation  thereof, 
or  that  we  may  discount  the  note  before  maturity,  should  we  wish  to  con- 
vert it  into  money.  Can  you  think  of  any  other  use  to  which  such  notes 
may  be  put  by  us  before  their  maturity? 

7.  Show  that  the  general  rule  for  debiting  accounts  applies  to  Discount, 
on  Notes  account. 

Exercise  19A.    Drill 
1.  Orally  journalize  the  following  transactions: 

o.  Reed,  a  note  from  Smith  in  full  of  acct.  ($1,000.00) 

b.  Discounted  Smith's  note  at  bank.     (Proceeds  $990.00) 

c.  Brown  gave  us  his  30-day  note  on  acct.  ($2,000.00) 

d.  Discounted  Brown's  note  today.     (Proceeds  $1,995.00) 

e.  Discounted  my  own  60-day  note  at  the  bank  (face  $1,000.00,  dis^ 

count  $10.00) 
/.  Sold  Brown  &  Co.  mdse.  on  acct.  ($2,400.00) 
g.  Brown  &  Co.  gave  us  their  60-day  note  in  full  ($2,400.00) 


66  BOOKKEEPING  AND  ACCOUNTING 

h.  Discounted  Brown  &  Co.'s  note.     (Discount  $16.80) 
i.  Reed,  from  Jones  his  30-day  note  on  acct.  ($1,500.00) 
j.  Gave  Bailey  &  Co.  the  Jones  note,  on  acct.  ($1,500.00) 

(Careful  now!    What  did  we  give?    Why  is  it  incorrect  to  say 

"Notes  Payable"?) 
k.  Southey  gave  us  his  30-day  note  in  full  of  acct.  ($1,250.00) 
I.  Transferred  the  Southey  note  by  indorsement  to  Blewett,  on  acct. 

($1,250.00) 
m.  Holt  &  Co.,  gave  us  their  60-day  note  in  full  ($4,000.00) 
n.  Discounted  Holt  &  Co.'s  note.     (Proceeds  $3,990.00) 
0.  Sold  my  own  4-mos.  note  to  a  note  broker.     (Discount  $100.00-, 

proceeds  $4,900.00) 


2.  On  Nov.   16,  19—,  H.  Long  received  the  following  note  from  T.  M. 
Shriver: 


'MOWUXUOiifOMUkJSSiaS 


imamaBiBtwriffifiYWTiYiffl^^ 


a.  Show  the  entry  in  T.  M.  Shriver's  books  on  Nov.  15. 
h.  Show  the  entry  in  H.  Long's  books  on  Nov.  16. 

c.  This  note  was  discounted  at  the  Second  National  Bank  on  December 

15,  19 — ,  at  6%.    Find  the  proceeds. 

d.  By  whom  was  it  discounted? 

e.  Show  the  indorsement  in  full. 

/.  Show  the  entry  in  Long's  books  on  Dec.  15. 

g.  Show  the  entry  in  Shriver's  books  on  Dec.  15.  (What  did  Shriver 
give  today?  What  did  he  receive?  Are  you  sure  that  he  actually 
gave  something?    Received  something?) 

h.  What  should  happen  on  Jan.  15,  19 — ? 

I.  Show  the  entry  in  Shriver's  books  on  Jan.  15. 

j.  Show  the  entry  in  Long's  books  on  Jan.  15.  (What  did  Long  re- 
ceive today?    What  did  he  give?    Are  you  sure?) 


ELEMENTARY  BOOKKEEPING 


67 


3.  For  each  note,  show  all  the  entries  under  proper  dates,  in  the  books  of 
both  the  maker  and  the  payee: 


Nos. 

Face 

Date 

Maker 

Payee 

When  reed,  by 
Payee 

Time 

When 
Disc. 

Rate 
of 
Dia. 

I 

II 
TTT 

$1,00' J 
2,4'X) 
3,C00 
2,000 
3.600 

00 
00 
00 
00 
00 

Mar.  16,  19— 
Sept.  4,  19— 
Oct.  3,  19— 
Apr.  4.  19— 
June  6,  19— 

T.  Timmer 
L.  Lane 
F.  Frost 
H.  Hope 
M.  Marks 

S.  Snow 
W.  White 
F.  Frost 
Himself 
N.  Natt 

Mar.  18,  19— 
Sept.  5,  19— 

30  days 
60  days 
90  days 
4  mos. 
60  days 

Mar.  31 
Sept.  19 
Oct.  3 
Apr.  4 
June  26 

6% 
6% 
6% 
5% 
5% 

TV 

V 

June  9,  19 — 

4.  Supply  the  probable  explanations  for  the  following  Journal  entries: 


$3,000.00 


July  3 

Notes  Receivable 

$3,000.00 

M.  L.  Lane 

July  15 

Cash 

2,991.00 

Dis.  on  Notes 

9.00 

Notes  Receivable 

Sept.  6 

Cash 

4,950.00 

Dis.  on  Notes 

50.00 

Notes  Payable 

Dec.  31 

L.  M.  Parsons 

2,000.00 

Notes  Receivablp 

Exercise  19B»8 

3,000.00 


5,000.00 


2,000.06 


Joumahze  the  following  transactions: 

July    1  James  Flynn  began  business  by  investing  cash  $4,000.00 

2  Paid  rent  of  store  $75.00 

3  Bot.  of  Frank  Rollins,  on  acct.,  mdse.  $3,000.00 
3  Bot.  of  Murray  &  Sons,  on  acct.,  mdse.  $2,500.00 
6  Sold  to  Jack  Bright,  for  cash,  mdse.  $800.00 

6    Sold  to  Benton  &  Co.,  on  their  30-day  note,  mdse.  $1,000.00.    Paid 
salaries  $25.00  cash 

8  Gave  Murray  &  Sons  my  2-mo.  note,  in  payment  of  invoice  of  7/3, 

$2,500.00 

9  Sold  to  A.  Ralph,  on  acct.,  mdse.  $1,000.00 

»8  For  additional  exercises,  see  end  of  Part  I. 


BOOKKEEPING  AND  ACCOUNTING 

10  Reed,  from  A.  Ralph,  his  1-mo.  note  in  pa3rment  of  invoice  of  7/9, 

$1,000.00 

11  Sold  to  B.  Smythe,  on  acct.,  mdse.  $1,000.00.    Discounted  Benton's 

30-day  note  of  7/6  at  the  Mrst  National  Bank,  receiving  credit 
for  the  proceeds 

12  Discounted  A.  Ralph's  1-mo.  note,  of  7/10,  at  the  First  National 

Bank,  receiving  credit  for  the  net  proceeds 
15    Borrowed  money  from  the  bank  on  my  2-mo.  note,  dated  today, 
at  5%,  face  of  note,  $1,000.00 


20.  DISCOUNTS 

We  have  just  discussed  three  important  discount  accounts.  Though 
some  bookkeepers  keep  a  single  discount  account,  it  is  better  to  follow 
the  example  set  by  accountants  who  favor  the  three  accounts  presented, 
as  well  as  a  number  of  additional  ones  with  which  the  student  may 
familiarize  himself  by  further  study. 

Before  proceeding  to  other  topics,  it  is  well  to  afford  an  opportunity 
to  drill  on  the  discount  accounts  introduced  in  Sections  17,  18  and 
19,  and  the  following  questions  and  exercises  are  accordingly  set  for 
solution. 

Questions 

1.  Distinguish  between:  (a)  discount  on  sales;  (6)  discount  on  purchases; 
(c)  discount  on  notes. 

2.  Why  must  the  Discount  on  Notes  account  always  have  a  debit  balance? 

3.  Why  do  we  discount  notes?    Prepay  purchases? 

4.  Why  do  customers  prepay  our  sales  to  them? 

5.  What  factor  is  used  in  finding  the  discount  on  notes  which  is  not  used  in 
finding  discount  on  sales? 

6.  Show  that  the  general  rule  for  journalizing  (debiting  and  crediting) 
applies  to  all  discount  accounts. 

7.  Differentiate  between  interest  and  discount. 

8.  How  can  you  tell  whether  a  discount  account  is  a  loss  or  a  profit  to  the 
bufiiness. 

Exercise  20A.    Drill 

1.  Orally  journalize  the  following  transactions: 

a.  Frost  paid  us  for  invoice,  less  2%.     (Net  cash  $294.00) 

6.  Discounted  my  own  60-day  note  at  bank.    (Face  $3,500;   discount 

$35.00) 
c.  Sold  Lott  &  Son  mdse.  2/10,  n/30.     ($600.00) 


ELEMENTARY  BOOKKEEPING 


dO 


($- 


-) 


($- 


d.  Lott  &  Son  paid  us  in  full,  less  2%. 

e.  Bot.  of  Browning  mdse.  2/10,  n/30.  ($800.00) 
/.  Paid  Browning  cash  in  full  of  invoice,  less  2%. 
g.  Reed.  Longworthy's  30-day  note  in  full  of  acct.     ($400.00) 

h.  Indorsed  Longworthy's  note  to  Kraft,  on  acct.  ($ ) 

t.  Sold  Silverman,  mdse.  on  acct.     ($1,000.00) 

j.  Reed,  from  Silverman  his  30-day  note  in  full  of  acct.     ($1,000.00) 
k.  Discounted  Silvermann's  note  6  days  before  maturity,  at  6%.     (Dis- 
count $1.00) 

Copy  the  following  form,  and  arrange  the  foregoing  transactions  therein: 


Item 

Accts.  Debited 

Why 

Accts.  Credited 

Why 

a. 

Cash  $294.00 

Dis.  on  Sales 
6.00 

Business  reed. 

money 
Business  reed. 

use  of  money 

Frost  $300.00 

Business  gave  (returned 
or  canceled)  claim 
against  Frost 

b. 

Cash 

$3,465.00 

Dis.  on  Notes 

35.00 

Business  reed. 

money 
Business  reed. 

use  of  money 

Notes  Payable 
$3,500.00 

Business  gave  (issued) 
written  promise  to 
pay. 

c. 

d. 

e. 

/. 

Browning 

$800.00 

Business  reed, 
(return      of) 
claim  in   fa- 
vor of 
Browning 

Cash  $784.00 

Dis.    on    Pur- 
chases 

16.00 

Business  gave  money 
Business   gave   use   of 
money 

3.  MaJce  all  necessary  entries  in  books  of  buyer  and  of  seller: 


Item 

Date 

Amount 

Buyer 

SeUer 

Terma 

When  Paid 

How  Settled 

I 

Jan.  3 

$    360.00 

Smith 

Jones 

2/10,  n/30 

Jan. 12 

Cash 

II 

Mar.  16 

1,020.00 

Long 

Thorpe 

1/30,  n/60 

Apr.  14 

Check 

III 

Julys 

610.00 

Ludlow 

Flatow 

2/10,  1/30 

Sept.  10 

Check 

IV 

Sept.  30 

375.00 

Siegel 

Bailey 

Net 

Oct.  8 

Check 

V 

June  21 

2,450.00 

McCabe 

Schwartz 

Cash 

July  2 

Check 

VI 

Dec.  29 

109.00 

Block 

Greene 

On  acct. 

Feb.  15 

30-day  noto 

70  BOOKKEEPING  AND  ACCOUNTING 

Exercise  20B  39 

Journalize  the  following  transactions: 

June   1    Student  (supply  your  own  name)  began  business  by  investing  cash 
$2,000.00  and  mdse.  $1,500.00 

2  Sold  to  T.  R.  Kane,  mdse.  on  account,  $600.00 

3  Bot.  of  Kahn  &  Co.,  on  my  15-day  note,  mdse.  $1,000.00 

3  Bot.  of  Lake  &  Son,  2/10,  n/30,  mdse.  $1,000.00 

4  Paid  rent  and  other  expense  items,  $110.00 

6  Discounted  at  the  banlc  my  own  4-mo.  note,  $5,000.00  4° 

8  Reed,  of  T.  R.  Kane,  his  30-day  note,  on  acct.,  $500.00 

8  Sold  to  B.  B.  Barnum,  2/10,  n/30,  mdse.  $1,200.00. 

10  Discounted  T.  R.  Kane's  note  of  6/8  at  bank 

12  Sold  my  90-day  note  for  $2,500.00  to  a  broker,  at  5% 

13  Paid  Lake  &  Son,  invoice  of  6/3,  less  2% 

13    Sold  R.  Brown,  mdse.  $1,000.00,  receiving  his  15-day  note  for  $500.00 

and  balance  in  cash 
15    Discounted  R.  Brown's  note  at  our  bank 
18    Paid  my  note  favor  of  Kahn  &  Co.,  due  to-day,  $1,000.00 
18    Reed,  of  B.  B.  Barnum,  in  full  for  invoice  of  6/8,  less  2%,  $1,176.00 
20    Bot.  of  Kahn  &  Co.,  mdse.  $2,000.00,  giving  cash  $500.00,  my   2-mo. 

note  for  $1,000.00,  balance  on  acct. 

21.  RETURNS  OF  MERCHANDISE 

After  buying  certain  goods  for  cash,  we  may  wish  to  return  all  or 
part  of  them.  If  we  are  permitted  to  do  so,  and  our  money  is  refunded, 
the  following  entry  results: 


Cash  Returned  to  John  Brown,        $ 

Mdse.  because  of  defects,  $ 

yds @ 

Had  the  original  purchase  from  John  Brown  been  on  account,  it 
is  probable  that  as  a  result  of  such  a  return  he  would  issue  to  us  a 
"  credit  memorandum, '^  and  instead  of  giving  us  money,  credit  our 
account  in  his  books.  What  would  our  entry  be?  As  we  gave  goods, 
the  credit  entry  is  simple.  Is  not  this  giving  of  merchandise  to  Brown 
similar  to  our  giving  him  cash?    And  if  so  the  following  entry  is  correct: 

John  Brown  $ 

Mdse.  $ 


*'  For  additional  exercises,  see  enc  of  Part  I. 

*°  When  no  rate  is  mentioned  employ  the  legal  one.     In  New  York  State  it  is 
six  per  cent. 


ELEMENTARY  BOOKKEEPING  71 

But  goods  are  also  returned  to  us.    The  entry  for  a  cash  sale,  returned 
to  us,  for  which  money  was  refunded  by  us,  is: 

Mdse.  $ 


Cash  $- 


In  case  we  accepted  the  return  of  such  goods,  and  issued  a  "  credit 
memorandum  "  for  the  same,  assuming  that  our  customer's  name  was 
F.  F.  Pierce,  the  proper  entry  is: 

Mdse.  $ 


F.  F.  Pierce  $ 

Questions 

1.  Why  are  goods  returned? 

2.  What  entry  is  made  when  we  return  goods,  receiving  cash  for  the  same? 

3.  Show  the  entry  when  we  issue  a  credit  memorandum  for  goods  returned 
to  us  by  Carlson  &  Co. 

4.  Suppose  that  after  buying  and  paying  for  some  stationery  we  decided  not 
to  use  it,  and  returned  it  for  cash.    What  entry? 

5.  What  entry  is  made  when  we  return  expense  items  and  receive  cash  there- 
for? 

Exercise  21A.     Drill. 
Orally  journalize  the  following  transactions: 

1.  a.  Bot.  of  Simpson,  mdse.  on  acct.     ($500.00) 

b.  Retd.  to  Simpson  part  of  purchase.     ($25.00) 

c.  Paid  Simpson  balance  of  acct.     ($ ) 

d.  Bot.  of  Crawford,  mdse.  on  acct.     ($300.00) 

e.  Retd.  to  Crawford  entire  purchase.     ($300.00) 

/.  Bot.  of  Brown  &  Co.,  mdse.  2/10,  n/30.     ($800.00) 

g.  Retd.  $50.00  worth  of  mdse.  to  Brown  &  Co.,  and  paid  balance  ia 

cash,  less  2%.     (Net  $735.00) 
h.  Sold  Lane,  mdse.  on  acct.     ($600.00) 
i.  Reed,  from  Lane  return  of  part  of  sale.     ($80.00) 
j.  Lane  paid  us  balance  of  acct.  in  cash.     ($520.00) 
k.  Sold  Price,  mdse.  2/10,  n/30  ($800.00) 
I  Price  retd.  above  sale.     ($800.00) 
m.  Sold  Marvin,  mdse.  2/10,  n/30.     ($900.00) 
n.  Marvin  retd.  part  of  above  sale  ($30.00),  and  paid  balance  in  cash 

less  2%.     (Discount  $17.40) 
0.  Bot.  stationery  for  cash.     ($10.00) 
p.  Retd.  stationery  and  reed,  cash  therefor.     ($10.00) 
q.  Paid  printing  bill.     ($18.00) 
r.  Printer  retd.  $2.00  cash  overcharged  us  in  above  bill. 

2.  Employing  the  form  shown  for  Problem  2,  Exercise  20A,  page  69,  enter 
therein  the  foregoing  transactions. 


72 


BOOKKEEPING  AND  ACCOUNTING 


3.  Analyze  the  following  accounts: 
(a)    F.  L.  Treat 


$360.00 

$     40.00 

1,040.00 

28.00 

910.00 

320.00 

910.00 

1,040.00 

Cash 

313.60 

1,019.20 

(6)    Merchandise 

Merchandise 

$40.00 

28.00 

910.00 

$    360.00 

1.040.00 

910.00 

Discount  on  Sales 


2,100.00 
4,400.00 


100.00 
180.00 


Discount  on  Purchases 


60.00 


6.40 
20.80 

Sebastian  Bros. 

100.00      2,100.00 
2,000.00      4,400.00 

180.00 
1,500.00 

Cash 

1,940.00 
1,500.00 

Exercise  21B«^ 

Journalize  the  following  transactions: 
May    1    H.  Siegel  began  the  flour  and  grain  business  by  investing  cash, 
$5,000.00 

2  Bot.  of  T.  Brown,   100  bbls.  flour  @  $7.00  and  200  bu.  grain   @ 

$1.00  for  cash 

3  Paid  rent  $50.00  and  sundry  expense  items  $24.00,  cash 

4  Bot.  of  Chicago  Flour  Co.,  on  acct.,  100  bbls.  flour  @  $6.90 

5  Retd.  to  T.  Brown,  for  cash,  10  bbls.  flour  @  $7.00 
Sold  to  Thompson  &  Bro.,  cash,  100  bu.  grain  @  $1.25 

6  Sold  to  Arnold  &  Co.,  on  acct.,  50  bbls.  flour  @  $9.00 

Sold  to  Bennett  &  Son,  on  acct.,  50  bu.  grain  @  $1.20  and  20  bbls. 

flour  @  $9.00 
8    Bot.  of  Chicago  Flour  Co.,  on  acct.,  200  bbls.  flour  @  $7.00 

Thompson  &  Bro.  retd.  to  us  20  bu.  grain  @  $1.25,  part  of  sale  of  the 

5th  inst.  and  we  gave  them  our  check  «  for  the  same 

*i  For  additional  exercises,  see  end  of  Part  I. 
*2  The  student  is  to  regard  checks  as  cash. 


ELEMENTARY  BOOKKEEPING 


73 


9    Paid  Chicago  Flour  Co.,  on  acct.,  $1,000.00  cash 
Sold  Arnold  &  Co.,  on  acct.,  50  bbls.  flour  @  $9.00 

10  Reed,  credit  from  Chicago  Flour  Co.  for  return  to  them  of  5  bbls. 

flour  @  $7.00 

11  Reed,  of  Bennett  &  Son,  on  acct.,  $150.00 

12  Arnold  &  Co.  retd.  10  bbls.  flour  @  $9.00.    Gave  them  credit  for  same 

13  Reed,  of  Arnold  &  Co.,  on  acct.,  cash  $500.00 
15    Paid  Chicago  Flour  Co.,  on  acct.  cash  $500.00 

Sold  to  Brooklyn  Trading  Co.,  on  acct.,  150  bbls.  flour  @  $9.00 
Sold  for  cash,  30  bbls.  flour  @  $9.00  and  50  bu.  grain  @  $1.30 


22.  DIVISION  OF  THE  MERCHANDISE  ACCOUNT 

Let  us  assume  that  as  a  result  of  posting  a  month's  transactions, 
the  Merchandise  account,  with  explanations  inserted  so  as  to  aid  us 
to  imderstand  the  various  entries,  is  as  follows: 


//c£yl^<.-^.<z,'n^'ti^^^<££y 


=^ 


dc4^>U^ 


//I 


/rSifC 


t 


Js^z^^^        ^2 


2. 

7 
// 


/  a  coo 


Jj-o 


2^  oc 


The  explanation  space  is  usually  left  blank  in  business.  Many 
bookkeepers  utilize  it,  however,  as  shown  herein. 

If  we  wished  to  ascertain  our  profit  on  merchandise  it  would  be 
desirable  to  know  the  cost  of  goods  sold  and  the  proceeds  of  sales. 
To  find  the  cost  of  goods  sold,  we  require  (at  least)"  the  value  (a) 
of  the  goods  on  hand  originally  and  (6)  of  the  net  purchases.  But 
the  amount  of  net  purchases  is  not  very  easily  ascertainable.  In  this 
case  it  is  the  sum  of  $500.00,  $1,000.00,  $2,000.00,  $1,500.00,  less  the 
sum  of  $40.00,  $100.00,  $25.00,  or  $4,835.00.  The  proceeds  of  sales, 
the  net  sales,  are  similarly  obtained.    From  the  total  of  the  sales 

*»  The  reason  for  the  use  of  the  parenthesis  will  be  made  clear  in  Section  23. 


74 


BOOKKEEPING  AND  ACCOUNTING 


we  must  deduct  the  total  of  the  returned  sales,  that  is,  from  the  sum 
of  $800.00,  $410.00,  $900.00,  $750.00,  $350.00,  $1,200.00,  $825.00, 
we  must  deduct  the  sum  of  $50.00,  $80.00,  $65.00,  obtaining  $5,040.00. 
It  should  be  clear  that  in  actual  practice,  where  many  more  items 
would  be  found  and  where  the  explanation  space  would  probably  not 
be  filled  in,  the  task  just  completed  would  be  a  much  more  compU- 
cated  one.  For  this  reason,  accountants  advocate  the  employment  of 
a  number  of  separate  accounts  for  the  complex  Merchandise  account. 
The  able  critic  of  this  account,  the  late  Professor  Charles  E.  Sprague, 
produced  an  unanswerable  argument  in  favor  of  three  accounts  when 
he  said  ''  an  account  which  has  to  be  made  over  should  have  been  made 
right  at  first."  The  three  accounts  are  Merchandise  Inventory  account, 
Purchases  account,  and  Sales  account.''*  If  these  three  had  been  em- 
ployed in  the  example  given,  we  should  have  had : 


IT' 


/' 


/  d>£)d) 


/Z^^c^>^.^C'^^'€Z.<£.£.<£^ 


/J- 


/ 


2.  COO 


/ 


^^^AjJ 


^lu^' 


<f0 


Q<.<^yi.'yi. 


/3 

3o 


12. 
J 

c 

// 


focco 
/  2>.o  cao 


*^The  terms  "Mdse.  Purchases  account"  and  "Mdse.  Sales  account"  are  often 
used  instead  of  the  last  two. 


ELEMENTARY  BOOKKEEPING 


76 


Observe  how  easily  the  total  purchases  are  obtained  from  the 
debit  side  of  Purchases  account  and  the  returns  from  the  credit  side. 
The  credit  side  of  Sales  account  supphes  the  total  sales,  while  the 
debit  side  shows  the  returns.  The  Inventory  account,  which  shows 
the  value  of  the  merchandise  on  hand  at  the  beginning  of  the  period, 
requires  no  further  comment  at  this  point. 

We  shall  close  this  section  by  a  few  typical  transactions  journaKzed: 

Apr.    1    M.  Long  began  business  by  investing  $1,500.00  and  1,000  bu.  wheat 
valued  @  $1.00 
5    Sold  to  F.  M.  MuUer,  on  acct.,  100  bbls.  flour  @  $8.50 
10    Bot.  of  Brown  &  Flander,  on  my  30-day  note,  1,000  bu.  wheat  @ 

$1.00  and  2,000  bu.  corn  @  60c. 
14    Marcy  &  Bro.  retd.  to  us,  for  cash,  part  of  their  purchase  of  the  10th — 

3  bbls.  flour  @  $9.00,  and  2  bbls.  apples  @  $4.00 
16    Retd.  to  T.  Towers  purchase  of  yesterday,  20  bbls.  apples  @  $3.00, 
receiving  credit  for  same 


A/f- 


&^..iA^ 


.  /a 
/v: 


iz4t^£^ 


xfS'^' 


J^'aa 


6fi 


ac? 


^ZS^pti' 


rj-c 


2.2.cf£>ai} 


^a 


<?Jb^ 


76 


BOOKKEEPING  AND  ACCOUNTING 


Of  the 


Questions 

1.  Give  the  objections  to  the  old  form  of  Merchandise  account. 

2.  What  is  the  function  of  the  Merchandise  Inventory  account? 
Purchase  account?    Of  the  Sales  account? 

3.  Could  you  analyze  the  Merchandise  account  into  purchases, 
if  the  explanation  space  were  not  employed?    Explain  fully. 

Exercise  22A.    Drill 

1.  Employing   Merchandise    Purchases    account    and    Merchandise   Sales 
account,  orally  journahze  the  transactions  of  Problem  1,  Exercise  17A,  page  58. 

2.  Now  orally  journalize  Problem  1,  Exercise  18A,  page  60. 

3.  Also  orally  journahze  Problem  1,  Exercise  20A,  page  68. 

4.  The  following  accounts  appear  in  the  Ledger  of  Hiram  Beadle: 

Merchandise  Purchases  Merchandise  Sales 


$1,650.00 

$50.00 

$  26.00 

$410.00 

910.00 

34.00 

8.50 

1,500.00 

2,400.00 

100.00 

490.00 

1,000.00 

3,000.00 

350.00 

460.00 
900.00 
400.00 

Discount  on  Sales 

Discount  or 

I  Purchases 

30.00 

48.00 

4.90 

72.00 

60.00 

30.00 

Expense 

Discount 

on  Notes 

108.00 

75.00 

6.30 

21.00 


5.00 


10.00 

16.00 

4.50 


a.  Analyze  each  of  these  accounts  stating  all  yoii  can  about  each  of  them. 

b.  Prepare  a  Profit  and  Loss  Statement  on  the  basis  of  these  accounts. 

Exercise  22B,'^ 

Journalize  Exercise  21 B,  employing  Merchandise  Purchases  and  Merchan- 
dise Sales  accounts.    Post  and  take  a  Trial  Balance. 

*'^  For  additional  exercises,  see  end  of  Part  I. 


ELEMENTARY  BOOKKEEPING  77 


23.  INVENTORIES 

Let  us  assume  that  the  cost  of  goods  sold,  on  the  basis  of  the 
accounts  illustrated  in  the  preceding  section,  was  as  follows: 

Cost  of  goods  on  hand  at  commencement,  as  per  Mdse.  Inv.  a/c         $1,000.00 
Purchases,  as  per  Dr.  side  of  Purchases  a/c  $5,000 .  00 

Less  goods  returned,  as  per  Cr.  side  of  Pur- 
chases a/c  165.00 

Net  Purchases  4,835.00 

Cost  of  goods  sold  $5,835 .  00 

Is  $5,835  the  cost  of  the  sales?  Undoubtedly  so,  unless  some  goods 
are  still  unsold.  The  unsold  goods  are  spoken  of  as  the  "  inventory 
of  merchandise,"  or,  more  briefly,  as  *'  the  inventory."  The  inventory 
is  ascertained  by  obtaining  the  quantity  of  goods  on  hand  and  valuing 
them  at  the  cost  price,  unless  the  market  price  is  lower,  in  which  case 
the  latter  price  is  employed.  If  the  goods  on  hand  are  worth  $1,200.00, 
then  the  cost  of  sales  was  $4,635.00,  which  fact  may  be  shown  in  the 
following  form: 

Cost  of  goods  on  hand  at  beginning,  as  per  Mdse.  Inv.  a/c  $1,000.00 

Net  Purchases,  as  per  Purchases  a/c  4,835 .  00 

Total        5,835.00 
Less  mventory  1 ,200 .  00 

Cost  of  goods  sold  $4,635 .  00 

The  profit  on  merchandise  is  obtained  by  comparing  the  cost  of 
sales  with  the  net  sales.  If  the  net  sales  were  $5,040.00  then  the 
profit  on  merchandise  would  be  $5,040.00  less  $4,635.00,  or  $405.00. 

Just  as  we  have  a  merchandise  inventory,  we  may  have  an  expense 
inventory.  For  example,  if  we  had  spent  $210.00  for  various  items 
charged  to  Expense  account,  it  would  not  necessarily  follow  that  all 
of  the  goods  charged  to  Expense  account  had  been  consumed.  Sta- 
tionery might  still  be  unused,  coal  might  not  yet  have  been  used  up, 
and  similarly  for  other  items.  If  we  had  $60.00  worth  of  such  items 
still  on  hand,  the  amount  would  be  referred  to  as  the  "  expense  inven- 
tory," and  the  loss  for  the  period  due  to  Expense  account  would  be 
$210.00  less  $60.00,  or  $150.00. 


78 


BOOKKEEPING  AND  ACCOUNTING 


Let  us  assume  that  the  Trial  Balance  resulting  from  a  set  of  trans- 
actions was  as  follows: 


Trial  Balance, 

December  31,  19 — 

Philip  Beever,  Prop. 

$2,900.00 

Cash 

$1,800.00 

Mdse.  Inv. 

1,500.00 

Purchases 

9,500.00 

Sales 

10,400.00 

Notes  Receivable 

2,000.00 

Notes  Payable 

1,400.00 

F.  Brown 

560.00 

Th.  Falton 

350.00 

Sylvester  Sons 

590.00 

Macy  &  Co. 

1,000.00 

Cooper  Sons  &  Co. 

800.00 

Expense 

200.00 

Discount  on  Notes 

27.00 

Discount  on  Sales 

54.00 

Discount  on  Purchases 

81.00 

$16,581.00 

$16,581.00 

The  inventory  of  merchandise  was  $2,100.00,  and  of  expense  items 
$82.00. 

We  will  prepare  the  Profit  and  Loss  Statement  and  the  Statement  of 
Assets  and  Liabilities,  which,  together  with  the  comments  following 
them,  should  be  sufficient  to  enable  the  student  to  prepare  such  state- 
ments by  himself. 


^^c<d4^  ^%2£.^<^^Hy 


oo 


^2, 


7^r^ 


^ 


ELEMENTARY  BOOKKEEPING 


79 


>£ 


79^A^4^^.-r^-^^^-^!^^^^-^^^ 


o.Z^-^  CJ/.    /^- 


2-foa 


&^ 


/MCC  C€> 


3  Zoo 


^ 


^zrz 


iZii. 


80  BOOKKEEPING  AND  ACCOUNTING 


Comments 

1.  Balances  and  horizontal  lines,   as  previously  explained,  are  often 

written  in  red. 

2.  "  Purchases — $9,500.00  " — represents   the   net   purchases,    that   is, 

the  difference  between  the  total  purchases  and  the  total  returned 
purchases. 

3.  "  Proceeds  of  sales — $10,400.00  " — ^represents  net  sales  as  per  Sales 

account. 

4.  The  arrangement  of  the  Statement  of  Assets  and  Liabilities  differs 

somewhat  from  those  presented  previously,  but  it  is  readily  under- 
stood. Note  that  the  total  assets  ($7,482.00)  equal  the  sum  of 
the  total  habilities  (3,200.00)  and  the  net  capital  ($4,282.00). 

5.  On  the  basis  of  the  Trial  Balance,  and  on  the  basis  of  the  Profit 

and  Loss  Statement  and  the  Statement  of  Assets  and  Liabilities 
prepared  from  it  carefully  test  the  correctness  of  the  following 
generalizations,  and  when  you  have  proved  them,  you  are 
advised  to  master  them; 

Observations 

a.  Every  Trial  Balance  account  which  has  a  debit  balance  repre- 
sents either  an  asset  or  a  loss.  If  the  balance  denotes  something  of 
value  belong  to  the  business  (cash  or  convertible  into  cash,  that  is, 
"  cashable  ")  it  is  an  asset;  otherwise  it  is  a  loss. 

6.  Every  Trial  Balance  account  which  has  a  credit  balance  repre- 
sents either  a  hability  *^  or  a  profit.  If  the  business  is  to  pay  or  liqui- 
date it,  it  represents   a  habiUty;  otherwise  it  is  a  profit. 

c.  Every  Trial  Balance  account  appears  in  either  the  Statement  of 
Assets  and  Liabilities  or  in  the  Profit  and  Loss  Statement,  but  not  in 
both  statements. 

d.  Inventory  items  appear  in  both  the  Statement  of  Assets  and 
Liabilities  and  in  the  Profit  and  Loss  Statement. 

*"  The  proprietor's  balance  is  often  referred  to  as  a  proprietary  liability.  It  is 
best  to  regard  it  as  a  special  item,  and  so  it  is  not  included  in  this  summary.  Recall 
that,  in  Section  4,  the  proprietor's  investment  was  regarded  as  a  claim  against  the 
busdness,  so  that  from  this  point  of  view  it  is  easily  treated  as  a  special  liability 
account. 


ELEMENTARY  BOOKKEEPING 


81 


Questions 

1.  What  are  the  inventories  and  why  are  they  taken? 

2.  How  does  the  merchandise  inventory  affect  (a)  the  Profit  and  Loss 
Statement,  (6)  the  Statement  of  Assets  and  Liabilities? 

3.  Try  to  explain  why  inventory  items  should  appear  in  both  statements. 

4.  How  is  an  inventory  taken?    Explain  fully. 


Exercise  23A.    Drill 

1.  Find  net  profit  or  net  loss:  Sales  $2,400.00,  returned  sales  $160.00; 
purchases  $3,700.00;  expenses  $185.00;  discount  on  sales,  $32.00;  discount 
on  purchases  $68.00;  discount  on  notes  $45.00;  inventory  of  unused  mer- 
chandise $1,850.00;  unconsumed  expense  items  $18.00. 


2.  Find  the  net  loss: 

Merchandise  Inventory 


1,250.00 


Merchandise  Sales 

25.00 

500.00 

60.00 

1,200.00 

8.00 

800.00 

2,100.00 

700.00 

Discount  on  Purchases 


20.00 
24.00 
54.00 


Merchandise  Purchases 


1,000.00 

150.00 

800.00 

80.00 

2,700.00 

4,000.00 

Expense 

75.00 

3.00 

12.00 

101.00 

5.00 

21.00 

Discount  on  Sales 

24.00 
42.00 


Discount  on  Notes 


8.00 
20.00 


Inventories  at  end  of  year:  Merchandise,  $4,050.00;  Expense  $35.00. 


82  BOOKKEEPING  AND  ACCOUNTING 

3.  Assuming  that  unsold  merchandise  is  worth  $560.00,  and  unconsumed 
expense  items  $40.00,  prepare  a  Profit  and  Loss  Statement  for  Hiram  Beadle. 
(Problem  4,  Exercise  22 A,  page  76.) 

4.  Now  prepare  a  Statement  of  Assets  and  Liabilities.  The  other  accounts 
are: 

Hiram  Beadle,  Prop.,  $3,860.00  (invested  $4,000.00  and  withdrew  $140.00); 
Cash,  $3,100.00;  Notes  Receivable,  $1,000.00;  Accounts  Receivable,  $2,600.00 
(L.  Jones,  $1,000.00;  M.  R.  Longley,  $250.00;  Freeman  Bros.,  $800.00;  Brooldyn 
Trading  Co.,  $550.00);  Notes  Payable,  $1,500.0.0;  Accounts  Payable,  $721.20 
(Seabury  &  Co.,  $500.00;  Marvin  &  Finke,  $221.20). 

5.  On  the  basis  of  Problem  3,  Exercise  14A,  page  50,  prepare  a  Statement 
of  Assets  and  Liabilities,  and  a  Profit  and  Loss  Statement.  Unsold  Mer- 
chandise is  worth  $850.00  and  unconsumed  expense  items  $15.00.  Assume 
that  the  debit  side  of  the  Merchandise  account  represents  purchases  and  the 
credit  side  sales. 

6.  Prepare  a  Profit  and  Loss  Statement  and  a  Statement  of  Assets  and 
Liabilities  for  Problem  1,  Exercise  14^4,  page  ^9.  The  debit  side  of  Mer- 
chandise account  represents  an  original  inventory  of  $800.00,  purchases  of 
$5,150.00  and  returned  sales  of  $25C.OO;  the  credit  side  sales  of  $6,675.00 
and  returned  puchases  of  $85.00.  Inventory  of  unsold  Merchandise  is  $336.00, 
and  of  unconsumed  expense  items,  $108.00. 

'  Exercise  23B 

Prepare  a  Profit  and  Loss  Statement  and  a  Statement  of  Assets  and  Liabil- 
ities for  Exercise  22B.  The  merchandise  on  hand  is  worth  $600.00  and  the 
value  of  the  unconsumed  expense  items  is  $35.00. 


24.  CLOSING  THE  BOOKS 

Annually,  sometimes  semiannually,  sometimes  even  oftener,  busi- 
ness men  wish  to  determine  the  progress  and  the  condition  of  their 
affairs.  We  have  already  learned  how  to  prepare  statements  for  this 
piu'pose.  It  is  customary  to  incorporate  in  the  Ledger  the  facts  shown 
by  the  two  statements.  For  example,  the  proprietor's  account  in  the 
Ledger  shows  his  net  investment,  whereas  the  Statement  of  Assets 
and  Liabilities  gives  his  present  worth  or  net  capital.  The  object 
of  "  closing  the  books  "  is  to  adjust  the  proprietor's  account,  as  well 
as  the  other  accounts. 

Though  the  custom  of  formally  closing  books  is  now  no  longer  uni- 
versal, the  great  majority  of  business  concerns  still  continue  the  prac- 


ELEMENTARY  BOOKKEEPING 


83 


tice.  We  shall  not  present  the  process  as  most  bookkeepers  employ  it/' 
for  accountants  strongly  condemn  their  methods.  The  professional 
accountant  follows  the  procedure  outUned  in  the  section  deahng  with 
advanced  accounting  and  modern  bookkeepers  follow  the  example 
set  by  these  accountants.  We  shall  present  the  general  principles 
employed. 

Balancing  Accoimts. — In  order  to  take  a  Trial  Balance,  we  must 
first  obtain  the  balance  of  the  accounts.  When  the  books  are  closed, 
it  is  sometimes  desired  to  show  the  balances  in  a  permanent  form.  Our 
illustrations  will  be  confined  to  the  following  three  accounts: 


=7^ 


(Z.^^ 


/ 


.^ 


Z/'£'^£}0 


2  OO 


\p^/ 


7 
Z./ 


7'S  o^ 


^6 


i/.30 


/o 


7S 


OO 
OO 


f^ 


/*— 


,_7C^^^;^.^».^^/-7i/ y^ri^^'z*^ 


/ 


/  O  OO 


p**^ 


'2.0 


yS'0O\OO 
2.0 

k3  o  c\oo 
/Aoaao 


z  ooo 
to 


r 


y 


/  O  Oc 
2.00>t 


yj-ooo 
facao 


*^  Instead  of  employing  Journal  entries  for  transfers,  a  red  ink  entry  is  made  ib 
the  account  to  be  transferred  and  the  item  is  written  in  black  ink  in  the  second 
Account.    See  any  elementary  text.     This  is  also  called  the  "red-ink"  method. 


84 


BOOKKEEPING  AND  ACCOUNTING 


The  steps  in  balancing  an  account  are  as  follows: 


^ 


j^- 


CXtt^yit. 


2.r 


6 
f 


Zoo 


>*^ 


7 
/o 
f2. 


yS90 


2.^ 


7>r 


*eJO 


1.  Foot  up  both  sides  of  the  account,  using  a  sharp,  hard  pencil, 
making  small  figures  as  close  to  the  last  item  on  each  side  as  possible. 

2.  Compute  the  balance,  in  pencil,  on  the  larger  side. 

3.  Write  the  balance,  $2043.95,  in  red  ink,  on  the  smaller  side 
and  on  the  first  blank  hne.  As  the  account  is  supposed  to  be  balanced 
on  the  last  day  of  the  month,  "  30  "  is  inserted,  because  the  date  of 
the  last  preceding  entry  was  the  24th.  The  addition  to  the  smaller 
side  is  known  as  the  Austrian  method  of  subtraction.  It  is  employed 
by  us  constantly  in  making  change.  For  example,  if  we  buy  something 
for  eleven  cents  and  offer  a  quarter  in  payment,  instead  of  saying 
"  eleven  from  twenty-five  is  fourteen,"  the  seller  says  "  eleven  plus 
^our  (pennies)  fifteen,  plus  ten  (a  dime),  twenty-five." 


^2e.^X^ 


/ 


iraa 

kS'CO 


/  to  ac 


pi^^ 


/ 
7 

2-/ 
^¥ 


/^.^Ct^.*^ 


4.  Now  place  your  ruler  immediately  beneath  $2,043.95,  and  rule 
a  red  ink  Une  in  the  money  column  of  the  credit  side.     Without  shift- 


ELEMENTARY  BOOKKEEPING 


85 


ing  the  ruler,  draw  a  similar  line  in  the  money  column  on  the  debit 
side.     These  Unes  are  known  as  addition  lines. 


(3u.^ 


/ 
/z. 


OO 
OO 

^ 

V 

cT 

^ 

2  OO 

OO 

7 

f 

/  ra 

OO 

/¥■ 

/3 

.fff 

o^o 

/QTl/tl.***^ 


7Jy>o 


crs" 


/  ao 
/  ooc 


JO 
OO 


5.  Foot  up  both  money  columns,  and  write  the  total,  $4,080.00, 
in  black  ink,  on  the  first  blank  Une  following  the  red  addition  hues. 
Write  figures  of  ordinary  size. 


"^ 

/ 

1/ 

zroo 
Soc 
zoo 

OO 
OO 
OO 

7 

} 

1/ 

7^ 

zc 

ao 

7<r 

JO 

xo 

*# 

f 
/3 

OO 
00 

3-/ 

7 

/o 

/  a  o 
/  ooo 

OO 
OO 

- 

..^^^-. 

2a. 
So 

/3z^^e,^u^ 

'Z 

rjo 

OO 

U.oi^.C 

i^^ 

^ero 

70 

6.  It  is  now  clear  that  the  addition  of  $2,043.95  to  the  credit  side 
has  made  the  total  of  that  column  equal  to  the  total  of  the  debit  column. 
The  sign  of  equality  is  "  = ."  Draw  double  hues  (long  "  equal " 
lines)  in  red  ink,  all  across  the  page.,  except  across  the  explanation 
space,  close  to  the  total  $4,080.00,  to  indicate  the  equality  of  the 
sides.     The  Cash  account  is  now  said  to  be  "  closed." 

7.  The  object  of  closing  the  Cash  account  was  to  place  the  balance 
on  permanent  record  and  to  have  it  stand  out  clearly.  But  as  the 
business  is  to  be  continued,  the  fact  that  a  balance  of  $2,043.95  is  on 
hand  is  important.    It  constitutes  the  starting  point  for  cash  for  the 


86  BOOKKEEPING  AND  ACCOUNTING 

nejrt  period.  This  fact  is  expressed  by  bringing  the  balance  down,  in 
black  ink,  under  date  of  July  1,  on  the  opposite  side.  Note  carefully 
that  the  July  1  entry  clearly  expresses  the  fact  that  the  cash  then  on 
hand  amounts  to  $2,043.95.  This  balance  is  called  a  debit  balance, 
despite  the  fact  that  it  first  appeared  on  the  credit  side  in  red  ink. 
Indeed,  some  assert  that  a  red  ink  balance  denotes  that  the  balance  in 
question  really  belongs  to  the  opposite  side. 


(Z**.»«^ 


(2k<iAy 


'  / 

3-n 


/■ 


/^Tl-^tt,-Pt^^ 


/  rccc 


d/r.aoac 


7 

2./ 


/c;;3W^«^j*-&e^ 


/ 


7 


7A 
z. 

/  a  c  o 

3-  04A3', 


.//a  <r^  2£ 


C7S 

CO 


Carefully  trace  the  seven  steps  which  resulted  in  each  of  the  two 
exhibits  following: 


^^k6S^.-.^V^J-^^^ 


Tf- 


Qutu/ 


ii^^ 


^}^ 


/S*^***<:^ 


/ 


hM^ 


foa  <?<:> 


^(2**^^. 


2.C 

\3o 


t^W^«-7».«<-^ 


oa 


Z,,^(fj:>^p 


P<**i^ 


'/A 
jo 


Jc 


/O*^ 


H 


2.  a  a  c  aa 


/  7iraoa 


~xnr:rdao 


9***^ 


.{^i 


;2 


/^l^^tZ^-P^^ 


2.aoo 
7cr^ 


ao 
'oo 


ELEMENTARY  BOOKKEEPING 


87 


There  is  a  marked  tendency  discernible  among  the  larger  business 
houses  to  dispose  with  the  formal  closing  illustrated  above.  Balances 
must  be  obtained,  however,  and  so  the  process  stops  when  the  second 
step  in  the  series  has  been  completed.  In  addition,  the  balance  is  fre- 
quently written  on  the  larger  side,  in  pencil,  alongside  of  the  last  item 
on  that  side,  in  the  explanation  space.  For  example,  Brown  &  Sons' 
account  would  appear  as  follows: 


K^^^f^y/3i^t>^<^-^ri^%'^-=:^^^ 


?^ 


Q-U^ruy 


/J- 


aoo- 


-2-7 
3o 


/J 


Xo  c 


The  entries  of  the  following  months  are  then  continued  without 
interruption. 

Closing  Closed  Accoimts. — Accounts,  especially  personal  accounts, 
are  frequently  settled.  Thus,  if  a  customer  of  ours  paid  his  indebtedness 
in  full,  or  if  we  paid  our  creditors  in  full,  the  respective  accounts  would  be 
balanced  or  closed.  We  shall  present  three  such  accounts  without 
comment.  The  student  should  remember,  of  course,  that,  when  formal 
closing  is  not  employed,  these  accounts  would  have  remained  untouched. 


or 


-T'^ 
^^U^^ 


.^- 


/  /^C?^ 


/  fi0_0<?0 


^lc*m^/y 


-rr^ 


J.OCOi 


88 


BOOKKEEPING  AND  ACCOUNTING 


/  o 

^  ac 


Closing  the  Books. — The  phrase,  *' closing  the  books/*  is  most 
frequently  applied  to  that  process,  usually  at  the  end  of  annual  periods, 
whereby  the  progress  and  condition  of  the  business  is  incorporated  in 
the  books.  It  consists,  essentially,  of  transferring  the  profit  or  the 
loss  shown  by  various  individual  accounts  to  a  summary  Profit  and 
Loss  account,  and  the  transferring  from  this  latter  account  to  the  pro- 
prietary account  or  accounts.  In  elementary  bookkeeping  this  summary 
account  is  usually  called  Loss  and  Gain  account. 

We  shall  illustrate  the  transferring  operation  at  once: 

1.  To  transfer  the  loss  of  $320.00  shown  by  the  Expense  account: 


J 
■J- 
Z-/1 


C^ty^b.€^r2>d^ 


/r 


/^6 


If  we  wish  to  transfer  the  amount  or  balance  ($320.00  less  $0.00, 
$320.00)  to  the  Loss  and  Gain  account,  we  must  close  the  Expense 
account.  To  do  so,  we  must  credit  it  for  $320.00.  As  the  Loss  and 
Gain  account  shows  the  losses  on  the  debit  side  and  the  gains  or  profits 
on  the  credit  side,  the  Loss  and  Gain  account  must  be  debited  for  the 
same  amount.  This  debiting  and  crediting  is  accomplished  by  means 
of  a  Journal  entry,  suitably  explained.    The  present  one  follows: 


January  31,  19 — 
Lobs  &  Gain    To  transfer  the  loss  shown  by 
Expense       Expense  a/c  to  L.  &  G.  a/c, 
and  to  close  the  former  acct. 


$320.00 


$320.00 


ELEMENTARY  BOOKKEEPING 
After  posting,  we  have: 


8d 


Q-^t^rty 


,^ 


re 


Jxc^f^ 


o?- 


'/A  J2.i 


KLie^c 


«=*^ 


^. 


J/ 


/-f 


3 10  a<? 


^:XJC^y<i-<-<'-*€,'*ty^yf^-riy)^^C^^ 


1^ 


This  account  may  be  closed  by  debiting  it  for  $11.80.  At  the  same 
time  Loss  and  Gain  account  must  be  credited  for  two  reasons:  because 
debits  and  credits  must  equal  each  other,  and  because  profits  are 
entered  upon  the  credit  side  of  the  smnmary  account.  This  Journal 
entry  is: 


January  31,  19 — 
Discount  on     To  transfer  the  profit  shown 
Purchases        by  Dis.  on  Pur.  a/c  to  the 
Loss  &         L.  &  0.  a/c  and  to  close  the 
Gain         former  acct. 


$11.80 


111.80 


90  BOOKKEEPING  AND  ACCOUNTING 

When  this  posting  has  been  completed,  we  have: 


<=>C.4^C^d^<>(^<4'^yiy^'-^,'t>'yt^rl^^ 


-rr=- 


J/ 


// 


// 


7=^ 


-// 


(^^&.t,rx^U>^     7-/^  Jxc 


-TV 


J/ 


J>.J4^„^>3^.  ^  7/^ 


// 


f^c 


After  all  accounts  which  show  profits  or  losses  have  been  closed 
"  into  Loss  and  Gain,"  the  latter  account  might  appear  as  follows: 


^  ^^.^^K:^^^^..^^^ 


■npr 


^/ 


J  xc 
3/ 


The  explanation  space  is  frequently  employed  when  posting  to  the 
Loss  and  Gain  account.  Note  that  a  profit  of  $600.00  has  been  trans- 
ferred from  Merchandise  account,  so  that  it  may  be  assumed  that  the 
division  advocated  in  Section  22,  has  not  been  used.  The  total  profits 
amount  to  $611.80  and  the  total  losses  to  $375.00,  therefore  the  net 
profit  is  $236.80.  This  is  to  be  transferred  to  the  account  of  the  pro- 
prietor, L.  C.  Buckley.  The  following  Journal  entry  accompHshes 
the  purpose: 


January  31, 19 — 
Loss  &  Gain  To  transfer  the  net  profit  shown  by 

L.  C.  Buckley,        L.  &  G.  a/c  to  the  Proprietor's 
Prop.  a/c,  and  to  close  the  former  acct. 


$236.80 


$236.80 


ELEMENTARY  BOOKKEEPING 


91 


If  we  assume  that  Mr.  Buckley's  original  investment  was  $2,000.00, 
while  his  withdrawals  were  $25.00  and  $40.00,  respectively,  upon  post- 
ing we  have: 


9C 


A^ 


J/ 


/ 


/^ 


i// 


'^ 


to 


m 


/»«^ 


^  <?^ 


z 


/ 

3/  Y'^y:,^!^,^jtWfiJ^  \ 


Mr.  Buckley's  account  shows  that  his  net  capital  is  $2,171.80. 
We  now  balance  his  account,  just  as  we  balanced  the  Cash  accoimt, 
but  call  the  balance  "  net  capital."    Having  done  so,  we  have: 


^Im  zs ao  Prt^  / 


pr^ 


T^^^r^^fe.^!!^ 


2-  /7  / 


i^Z'i  6 


J?X^ 


.<«.»<^ 


.fu^Jf,^ 


724>^^*^U^^^ 


Not  much  remains  of  the  present  topic.  We  shall  conclude  by 
showing  how  inventories  are  treated  and  how  to  close  the  Merchandise 
Inventory,  Purchases,  and  Sales  accounts. 


92 


BOOKKEEPING  AND  ACCOUNTING 


If  $50.00  represented  the  balance  of  unconsumed  expense  items, 
then  $270.00,  instead  of  $320.00  (see  account,  page  88),  should  have 
been  transferred  to  Loss  and  Gain  account.  The  inventory  should 
have  been  entered  in  such  a  way  as  to  cause  the  transfer  of  the  proper 
amount  and  still  show  that  we  had  on  hand  unconsumed  expense 
items  valued  at  $50.00.  The  modern  methods  of  the  accountant  are 
fully  described  in  books  on  accounting.  Here  we  shall  present  the 
device,  very  briefly,  but  suflScient  for  the  purposes  of  the  beginner: 

(a)  First  a  Journal  entry  to  take  care  of  the  inventory: 

Date 
Exp.  Inventory    To  enter  expense  inventory  on  books  $50 .  GO 

Expense  $50.00 

(6)  After  posting  the  above  entry,  we  make  another: 

Date 
Loss  &  Gain  To  transfer  loss  shown  by  Expense        $270.00 

Expense  a/c  to  L.  &  G.  a/c  and  to  close  $270.00 

the  former  acct. 

After  posting  both  entries,  the  Expense  account  will  be  closed;  the 
Loss  and  Gain  account  will  appear,  as  before,  as  a  new  account;  Ex- 
pense Inventory  account  will  be  debited  for  $50.00,  representing  an 
asset.     The  Expense  and  Expense  Inventory  accounts  appear  as  follows: 


C<x:^(z^>yv<iuJ 


J2.0 


vi/ 


^70 


32o 


00 


J/ 


;^/; 


k/'c  ao 


ELEMENTARY  BOOKKEEPING 
A  simpler  method,  sometimes  employed,  is  as  follows: 


98 


(a)  A  Journal  entry  to  transfer  from  the  Expense  account  to  the  Loss  & 
Gain  account  the  actual  loss  resulting  from  expense: 


January  31,  19 — 
Loss  &  Gain  To  transfer  loss  from  the        $270.00 

Expense  Expense  a/c  to  the  L.  &  G.  a/c  $270.00 

(5)  The  balance  of  the  Expense  account  now  represents  the  value  of  the 
unconsumed  expense  items.  The  account  may  now  be  balanced  or  closed,  as 
follows: 


C<li'^h,£'''yu>^^^ 


^^- 


P^ 


Zf 


/ 


^tJi:u„^(,A<^j 


<^^^ 


oT^ 


<?o 


lyo 


'^C  oc 


.J/,a  va 


For  the  present,  the  student  is  advised  to  employ  the  first  method 
shown,  that  is,  to  use  an  Expense  Inventory  account. 

The  final  proposition  will  deal  with  the  closing  of  the  following 
accounts: 


77^ 


^ 


/A^cd^  \fi^tyU^c^rpt^''UU^ 


.^' 


/<Pifa 


ai? 


y- 


X 

// 


A^^c^cyUc^^-ttd^^^^y 


/t^iifc  at? 


^^, 


.?• 


/z 
2.3 


94 


BOOKKEEPING  AND  ACCOUNTING 


/^ 


J/ 


The  merchandise  now  on  hand  (^nai  inventory)  may  be  taken  to 
be  worth  $1,200.00.  The  net  purchases  amount  to  $2,965.00  ($3,000.00 
less  $35.00);  the  net  sales,  $3,450.00  ($3,500.00  less  $50.00).  The 
student  will  recall  that  the  goods  on  hand  at  the  beginning  of  the 
period  are  added  to  the  net  purchases  as  the  first  step  in  ascertaining 
the  profit  by  means  of  the  Profit  and  Loss  Statement.  Something 
similar  is  accomplished  by  the  following  Journal  entry: 


Date 
Purchases  To  transfer  old  inventory  to  Pur- 

Mdse.  Inventory     chases  a/c,  and  to  close  Mdse. 
Inv.  a/c 


$1,000.00 


$1,000.00 


From  the  purchases  so  increased,  we  must  deduct  the  value  of  the 
present  inventory.  The  following  entry  does  so,  and  at  the  same  time 
places  this  new  inventory  on  the  books  by  charging  the  Merchandise 
Inventory  account: 

Date 
Mdse.  Inventory    To  enter  present  inventory  and  to     $1,200.00 

Purchases  establish  the  cost  of  sales  $1,200.00 

The  Purchases  account  will  now  show  the  cost  of  goods  sold.  In 
order  to  compare  this  cost  with  the  sales,  the  former  may  be  trans- 
ferred to  the  latter: 


Sales 


Purchases 


Date 
To  transfer  cost  of  sales  to  Sales  a/c     $2,765 .  00 

and  to  close  Purchases  a/c  $2,765.00 


The  balance  of  the  Sales  account  now  shows  the  profit  on  merchan- 
dise.   It  must  be  referred  to  the  Loss  and  Gain  account: 


Date 
Sales  Profit  on  sales  transferred  to  L.  & 

Loss  &  Gain        G.  a/c  and  to  close  Sales  a/c 


$685.00 


$685.00 


ELEMENTARY  BOOKKEEPING 


95 


The  accounts  affected  by  the  above  Journal  entries,  after  posting, 
appear  thus: 


/jr     /aa^  ^ 


ff 


'3^ 


/zai 


\i./ 


^e.^^^^;^. 


yi^Lc'^i^^>A>i;i.<£.e<d^ 


p^. 


/2. 

2-f 


//  'f9i,u,^KA>j^^c-^: /^ 


-TTTrrd 


7^ 


TTZ} 


V 


J  /  >?2.w(t^vA^y<^>u 


J?Ai.£e^Y<^ 


^J^/^^A^y 


J/ 


^^- 


'^ 


aa 


vjv<?^ 


i^. 


/IOC 

/  oocY>. 


3^<2£?aC 


'^^^^<£^ 'K:^^^u^ 


J/ 


^^AUe^Yc^  ^  2/1  ^/V  b^ 


T 


Questions 

1.  A  Statement  of  Profit  and  Loss,  prepared  on  the  basis  of  the  foregoing 
accounts,  would  result  in  a  profit  on  sales  exactly  equal  to  that  shown  by  the 
Loss  and  Gain  Account.     Explain  the  equality. 

2.  Differentiate  between  a  Loss  and  Gain  account  and  a  Statement  of 
Profit  and  Loss. 


96 


BOOKKEEPING  AND  ACCOUNTING 


3.  Why  and  when  should  accounts  be  closed? 

4.  State  what  procedure  is  necessary  to  record  the  existence  of  inventories. 
6.  Why  is  it  unnecessary  formally  to  close  personal  accounts? 


Exercise  24A.    Drill 

1.  Copy  the  following  accounts  on  Ledger  sheets  and  rule  them  off  op  close 
them: 

F.  L.  Lane,  360  B'way,  N.  Y.  City 


19— 

19— 

Apr. 

6 

J 

15 

824 

32 

May 

2 

J 

18 

500 

00 

May 

19 

21 

730 

00 

June 
July 

3 

1 

27 
31 

500 
554 

00 
32 

Notes  Payable 

' 

19— 

19— 

Apr. 

4 

J 

18 

1,000 

00 

Feb. 

3 

J 

6 

1,000 

00 

18 

20 

1,200 

00 

18 

9 

1,200 

00 

July 

6 

31 

900 

00 

Mar. 

6 

13 

900 

00 

Oct. 

15 

48 

5,000 

00 

Sept. 

15 

42 

5,000 

00 

Dec. 

31 

62 

2,000 

00 

Oct. 

31 

50 

2,000 

00 

2.  Copy  the  following  accounts  on  Ledger  sheets  and  balance  them: 

Cash 


19- 

19— 

Apr. 

1 

J 

15 

1,000 

00 

Apr. 

1 

C 

5 

700 

00 

18 

C.B. 

4 

1,408 

75 

15 

5 

250 

00 

May 

3 

6 

538 

50 

19 

5 

437 

60 

19 

6 

226 

37 

May 

15 

7 

250 

00 

Oct. 

22 

6 

2,666 

67 

15 

9 

1,275 

00 

Nov. 

1 

10 

13 

50 

July 

15 

9 

500 

00 

15 

10 

1,527 

50 

18 

11 

33 

35 

Dec. 

28 

12 

1,789 

64 

Oct. 
Dec. 

27 
15 
30 
30 
15 
15 

11 
11 
13 
13 
13 
13 

140 
750 
865 
1,500 
125 
375 

00 
00 
00 
00 
00 
00 

23 

13 

63 

80 

ELEMENTARY  BOOKKEEPING 


97 


Henry 

L.  Mayer 

19— 

19— 

Mar. 

3 

13 

538 

50 

May 

3 

6 

538 

50 

Sept. 

16 

25 

785 

67 

Oct. 

24 

8 

2,666 

67 

29 

27 

1,881 

00 

Nov. 

15 

10 

1,527 

60 

Oct. 

14 

30 

1,527 

50 

Nov. 

17 

34 

1,785 

50 

Cyrus  Field 


19— 

1 

19— 

May 

16 

9 

1,275 

00 

Feb. 

13 

16 

900 

00 

Sept. 

21 

2 

27 

50 

27 

17 

375 

00 

Oct. 

15 

13 

1,500 

00 

Aug. 

28 

19 

936 

30 

Dec. 

23 

13 

63 

80 

Aug. 
Nov. 
Dec. 

12 
18 
15 

19 
22 
24 

655 

427 

1,100 

00 
75 

00 

3.  Copy  the  following  accounts  on  Ledger  sheets  and  close  the  books  by 
means  of  Journal  entries: 


Maxwell  Reid,  Proprietor 

19— 

19— 

Apr. 

3 

J 

2 

35 

00 

Apr. 

1 

J 

1 

2,500 

00 

July 

27 

11 

140 

00 

Merchandise  Purchases 


19— 

19— 

Feb. 

28 

J 

17 

4,408 

70 

Sept. 

30 

J 

2 

227 

50 

Aug. 

31 

19 

7,645 

63 

Nov. 

30 

5 

145 

00 

Nov. 

30 

22 

13,480 

89 

Dec. 

31 

24 

8,510 

25 

Merchandise  Sales 


19— 

19— 

Oct. 

31 

4 

62 

50 

May 
Sept. 
Oct. 
Nov. 

31 
30 
31 
30 

13 
27 
30 
34 

6,605 
10,100 
15,125 
11,950 

75 
50 
00 
25 

98 


BOOKKEEPING  AND  ACCOUNTING 
Expense 


19— 
Apr. 

May 
July 

Oct. 
Dec. 


1 

C 

5 

700 

00 

15 

5 

250 

00 

15 

7 

250 

00 

15 

9 

500 

00 

18 

9 

33 

35 

15 

11 

750 

00 

15 

13 

375 

00 

15 

13 

125 

00 

(Inventories:    Mdse.  $1,000.00;  Expense  $120.00.) 


4.  Copy  the  following  accounts  on  Ledger  sheets. 
Frank  R.  Crane,  Capital  Cash 


19— 

Dec.  31     $120.00 


19—  19— 

Dec.  31  $4,000.00     Dec.  31  $13,600.00 


19— 

Dec.  31  $10,229.50 


Merchandise  Inventory 


Merchandise  Purchases 


19— 

Dec.    1     $800.00 


1^- 

Dec.  1    $5,150.00 


19— 

Dec.  30      $85.00 


Merchandise  Sales 


Expense 


19— 

19— 

19— 

19— 

Dec.  28     $250.00 

Dec.    1  $6,675.00 

Dec.  27 

$675.00 

Dec.  28 

12.00 

Thomas  Browne 

Rawlins  &  Sons 

19— 

19— 

19— 

19— 

Dec.  10  $2,500.00 

Dec.  20  $1,000.00 

Dec.  11 

$800.00 

Dec.  23 

$800.00 

ELEMENTARY  BOOKKEEPING  99 

Smith  &  Foley  Lane  &  Court 


19— 

Dec.  9    $1,400.00 


19— 

Dec.  12     $920.00 


19— 

Dec.  19       $350.  OC 


Smith  &  Smith 


Notes  Receivable 


19— 

Dec.    7  $1,040.00 


19—  19— 

Dec.  15     $800.00     Dec.  15    $3,000.00 


19— 

Dec.  26    $1,200.00 


James  Talcott 


Smiley  &  Co. 


19— 

Dec.  24  $2,650.00 


19—  19— 

Dec.  11  $5,500.00     Dec.  27  $1,300.00 


19— 

Dec.  20    $2,000.00 


Babcock  &  Co. 


Baff  &  Tramm 


19—  19— 

Dec.  15     $700 .  00     Dec.  28       $250 .  00 


19— 

Dec.  20       $250.00 


Notes  Payable 


Discount  on  Sales 


19— 

Dec.  29  $1,700.00 


19—  19— 

Dec.  19  $2,700 .  00     Dec.  30      $125 .  25 


Discount  on  Notes 


19— 

Dec.  30        $27.00 


19— 

Dec.  29      $5.75 


5.  Prepare  a  Trial  Balance  for  Problem  4,  above. 

6.  Prepare  (a)  a  Profit  and  Loss  Statement  and  (6)  a  Statement  of  Assets 
and  Liabilities.  Mdse.  Inventory  Dec.  31,  19—,  $336.00,  Expense  inventory 
$108.00. 


100  BOOKKEEPING  AND  ACCOUNTING 

7.  Show  the  Journal  entries  necessary  to  close  the  books, 

8.  Post  the  Journal  entries. 

9.  Close  the  books. 

Exercise  24B 

Close  the  books  employed  to  write  up  the  transactions  of  Exercise  22B, 


25.  MISCELLANEOUS  ACCOUNTS 

Enough  has  been  presented  to  enable  the  student  to  keep  a  set 
of  elementary  double  entry  books.  Before  proceeding  to  a  more 
advanced  phase  of  the  subject,  a  few  additional  accounts  and  topics 
will  be  presented. 

Furniture  and  Fixtures  Account. — If  the  Student  were  asked  to 
enter  the  cash  purchase  of  a  safe  for  office  use,  he  might  journahze  the 
transaction  thus: 

Expense        Bot.  of  Mosler  Safe  Co.  $100 .  00 

Cash  1  safe  for  office  $100 .  00 

It  is  desirable  to  exclude  from  the  Expense  account  such  articles 
as  safes,  desks,  chairs,  filing  cabinets,  etc.,  which  are  charged  to  Furni- 
ture and  Fixtures  account.  The  foregoing  purchase  should  accordingly 
be  charged  to  Office  Furniture  account  or  to  Furniture  and  Fixtures 
account: 

Furniture  &  Fixtures        Bot.  of  Mosler  Safe  Co.        $100.00 

Cash  1  safe  for  office  $100.00 

At  the  end  of  a  given  period,  the  value  of  the  furniture  will  be  less 
than  shown  by  the  Furniture  and  Fixtures  account.  This  lower  value 
may  be  considered  as  the  inventory  value. 

The  Furniture  and  Fixtures  item,  in  the  Statement  of  Assets  and 
Liabihties,  should  be  shown  at  its  inventory  value.  The  difference 
between  this  inventory  value  and  its  cost  represents  a  loss  due  to  **  de- 
preciation." ^*  This  depreciation  is  shown  among  the  losses  in  the 
Profit  and  Loss  Statement. 

*«  For  a  fuller  discussion  of_depreciation,  see  pages  328  and  329. 


ELEMENTARY  BOOKKEEPING 

■'  •  ' 

To  illustrate:  .  .  .7.  - 

(a)  In  the  Statement  of  Assets  and  Ldabilities: 


m 


.  .  •   '  •■: 


or, 


Notes  Receivable 
Furniture  and  Fixtures 
Expense  Inventory 


8,500 

00 

738 

00 

175 

00 

Notes  Receivable 

Furniture  and  Fixtures  $820 .  00 

Less  depreciation,  10%         82.00 


8,500 


738 


00 


00 


(6)  In  the  Profit  and  Loss  Statement: 


Profit  on  Merchandise,  brought  down 

Discount  on  Purchases 

Furniture  and  Fixtures  Depreciation 

82 

00 

2,300 
96 

00 
00 

Other  Expense  Accounts. — Discount  on  Notes  account,  and  Dis- 
count on  Sales  account  may  be  regarded  as  subdivisions  of  the  Expense 
account.  If  the  niunber  of  transactions  warrant  it,  the  Expense  account 
is  further  subdivided.  The  following  titles  are  self-explanatory:  Freight 
account,  Advertising  account,  Salary  account,  Rent  account,  Insurance 
account,  Tax  account,  and  others.  Further  information  regarding  this 
subject  will  be  found  in  more  advanced  phases  of  our  study. 

Sight  Drafts. — Business  men  sometimes  employ  what  are  known 
as  sight  drafts  for  the  purpose  of  effecting  collections.  These  instru- 
ments are  infrequently  used  in  ordinary  transactions,  but  are  rather 
restricted  to  the  collection  of  past-due  accounts.  Illustrations  and 
descriptions  of  sight  drafts  will  be  found  on  pages  399-401  of  this  book. 

If  Smith  &  Jones,  who  owe  us  $300.00,  failed  to  pay  their  account 
when  due,  and  if  we  draw  a  sight  draft  on  them,  no  entry  need  be  made 
at  the  time  when  the  draft  is  drawn,  because  the  drawing  of  such  a 
draft  is  really  equivalent  to  a  formal  demand  that  payment  be  made 
at  once.  However,  when  the  bank,  the  agent  to  whom  the  task  of 
collection  is  usually,  though  by  no  means  always,  intrusted,  returns 


101*   ,  BOOKKEEPING  AND  ACCOUNTING 

tcF  UkiSj.  gay  $293: 00 j  its  the  proceeds  of  the  draft,  retaining  $2.00  for  the 
services  involved,  an  entry  of  the  following  form  is  in  order: 

Cash  $298.00 

Collection  &  Exchange  2.00 

Smith  &  Jones  $300.00 

Sight  drafts  are  sometimes  drawn  on  us.  Assume  that  Bailey  &  Co. 
had  their  bank  present  a  sight  draft  against  us  for  $500.00,  which  we 
paid.  The  entry  therefor  would  be  equivalent  to  the  payment  of  an 
ordinary  debt,  i.e.,  Bailey  &  Co.'s  account  would  be  charged  or  debited, 
and  Cash  account  would  be  credited,  in  each  case,  for  $500.00. 

Shipments  and  Consignments. — Manufacturers  and  dealers  some- 
times send  goods  to  their  customers  "  on  consignment."  This  is 
practically  equivalent  to  a  memorandum  sale,  i.e.,  the  goods  may  be 
returned  if  unsold  or  if  for  any  reason  they  prove  unsatisfactory.  In 
other  cases,  the  manufacturer  or  dealer  may  send  goods  to  his  custom- 
ers to  be  sold  on  a  commission  basis.  The  situations  resulting  from  such 
procedure  are  varied.    We  shall  consider  the  simplest  one. 

Let  us  assume  that  we  have  received  twelve  dozen  pairs  of  gloves 
from  the  Gloucester  Glove  Co.  to  be  sold  for  their  "  account  and  risk." 
The  transactions  involved  were  as  follows: 

(a)  The  goods  were  received  on  September  1,  19 ,  at  which  time  we  paid 

express  charges  amounting  to  $1.25. 

(6)  On  September  18,  we  disposed  of  eight  dozen  pairs  of  gloves  at  $9.00 
per  dozen. 

(c)  The  balance  of  the  gloves  were  disposed  of  on  September  22,  at  $9.00 
per  dozen. 

(d)  On  September  23,  we  sent  the  Gloucester  Glove  Co.  our  check  for 
$95.95,  which  amount  was  arrived  at  as  follows: 

12  dozen  at  $9.00  $108 .  00 

Less 

Expressage  $1 .  25 

Conmiission  10 .  80 


Total  deductions  12.05 


Balance  remitted  $95 .  95 


The  entries  corresponding  to  the  foregoing  transactions  are  as  follows: 

(o')  Gloucester  Glove  Co.  Consignment  Inward  No.  1      $1.25 

Cash  $1.25 

Paid  freight  on  a  consignment  of  twelve  dozen 
pairs  of  gloves  from  Gloucester  Glove  Co. 


ELEMENTARY  BOOKKEEPING  103 

The  student  is  to  observe  that  instead  of  debiting  the  Gloucester 
Glove  Co.,  the  charge  is  made  to  "  Gloucester  Glove  Co.  Consignment 
Inward  No,  i."  ''Consignment  Inward  No.  1"  is  added  so  as  to 
distinguish  this  account  from  an  ordinary  personal  account,  for  it 
is  obvious  that  a  consignment  transaction  of  this  kind  differs  from  an 
ordinary  purchase  or  sale  transaction. 

(60  Cash  (or  customer's  account)  $72.00 

Gloucester  Glove  Co.  Consignment  Inward  No.l  $72 .  CO 

Sold  eight  doz.  pr.  gloves  at  $9.00  per  dozen, 
from  Gloucester  Glove  Co.'s  consignment, 

(on  account,  or  for  cash,  as  the  case 

may  be). 

The  student  should  note  that  instead  of  crediting  sales  account, 
the  proceeds  of  the  sale  are  credited  to  the  Gloucester  Consignment 
account. 

(</)  Cash  (or  customer's  account)  $36.00 

Gloucester  Glove  Co.  Consignment  Inward  No.  1  $36 .  00 

Sold  four  doz.  pr.  gloves  @  $9.00  per  dozen, 
from  Gloucester  Glove  Co.'s  consignment, 

(on  account,  or  for  cash,  as  the  case 

may  be). 

{d')  Gloucester  Glove  Co.  Consignment  Inward  No.  1    $10 .  80 

Conmiission  $10.80 

10%  of  amount  of  gross  sales,  as  per 
agreement. 

It  is  assimied  that  we  were  allowed  10%  commission  for  the  ser- 
vice of  seUing,  together  with  the  reimbursement  to  us  for  any  expenses 
other  than  for  freight,  which  we  may  have  incurred  during  the  time 
that  the  goods  were  in  our  possession.  The  credit  to  the  Conunission 
accoimt,  a  profit  and  loss  account,  records  an  earning  by  us. 

{d")  Gloucester  Glove  Co.  Consignment  Inward  No.  1  $95 .  95 

Cash  $95.95 

Net  proceeds  remitted  by  check. 


Accountants  prefer  that  before  making  the  remittance  of  the  net 
proceeds,  in  such  cases  as  under  present  discussion,  the  consignment 
accoimt  be  transferred  to  the  personal  account  of  the   shipper  or 


104 


BOOKKEEPING  AND  ACCOUNTING 


consignor.  When  this  is  done,  the  entry  consists  of  debiting  the  shipper 
and  crediting  the  consignment  account,  and  then  the  entry  for  the 
remittance  consists  of  a  credit  to  cash  and  a  charge  to  the  personal 
account  of  the  shipper.  Though  this  procedure  has  undoubted  merit, 
it  is  well  enough  for  the  student's  present  purposes  to  employ  the 
methods  outlined  above. 

When  the  check  for  the  net  proceeds  is  sent,  it  is  usual  to  forward 
with  it  a  so-called  **  Account  Sales,'*  showing  the  original  owner  of  the 
goods  how  the  amount  of  the  net  proceeds  was  arrived  at.  The  follow- 
ing illustration  will  prove  self-explanatory: 


New  York,  September  23,  19 

Account  Sales  of  Twelve  Dozen  Pairs  of  Gloves 
Sold  for  the  account  and  risk  of  Gloucester  Glove  Co. 

Gloucester^  Mass. 
THOMAS  STONE 
Dry  Goods  Dealer 
100  Water  Street 

Sept. 

18 
22 

1 
22 

8  doz.  pairs  gloves                     $9 .  00 
4  doz.  pairs  gloves                       9.00 

Charges: 
Expressage 
Commission,  10% 

Net  proceeds,  herewith 

72 
36 

00 
00 

108 
12 

00 
05 

1 
10 

25 
80 

95 

95 

As  a  concluding  topic,  let  us  consider  the  situation  which  results 
when  we  ship  or  consign  goods  to  another  firm  to  be  sold  by  them  for 
us.  Just  as  in  the  first  case,  let  us  assume  that  we  are  keeping  the  books 
for  Mr.  Thomas  Stone,  and  that  in  this  case  the  goods  are  consigned  to 
Brown  Bros,  of  Washington,  D.  C.  The  transactions,  in  so  far  as  we 
are  concerned,  are  as  follows: 


(o)  October  3,  19 — ,  we  shipped  to  Brown  Bros.  30  suits  which  had  cost 
us  $13.00  each.    We  prepaid  freight  charges  amounting  to  $2.40. 

(6)  On  November  8,  we  received  Brown  Bros.'  check  for  $471.43,  together 
with  the  following  Account  Sales: 


ELEMENTARY  BOOKKEEPING 


105 


Washington,  D.  C,  November  7,  19— 

Sold  for  Account  and  Risk  of  Thomas  Stone 

100  Water  Street,  New  York  City 

By 

Brown  Brothers 

Commission  Merchants 

1000  Pennsylvania  Avenue 

Oct. 

Nov. 

Oct. 
Nov. 

21 

27 
2 

6 

1 

1 
7 

20  suits                                          $16.50 
6  suits                                            16.00 
4  suits                                            17.00 

Charges: 
Drayage 
Advertising  in  Washington  Ledger  (3 

inserts) 
Insurance 
Commission,  3% 

Net  proceeds,  as  per  check  inclosed 

330 
96 
68 

00 
00 
00 

494 
22 

00 
57 

2 

3 
1 

14 

50 

75 
50 

82 

471 

43 

The  entries  in  our  books  are  as  follows: 

(a')  Brown  Bros.  Consignment  Outward  No.  1 
Purchases 


$390.00 


$390.00 


Consigned  30  suits  costing  us  $13.00  each 
to  Brown  Bros,  to  be  sold  for  our  accoimt 
and  risk. 


The  student  should  observe  how  a  consignment  received  »by  us 
(inward)  is  distinguished  from  goods  that  we  consign  to  be  sold  for  us 
(outward).  The  numeral  attached  serves  to  distinguish  different  ship- 
ments made  to  the  same  concern.  Instead  of  crediting  Sales  account, 
note  that  Purchases  account  is  credited.  This  is  for  the  purpose  of 
reducing  the  Purchases  account,  which  ordinarily  shows  the  goods  which 
we  purchase  for  use  or  sale  by  us.  The  account  with  Brown  Bros., 
Consignment  Outward  No.  1,  may  be  regarded,  in  this  case,  as  a  special 
Merchandise  Purchases  account.  It  must  be  clear  to  the  student 
that  a  credit  to  Sales  account  would  be  wrong,  though  some  bookkeepers 
do  credit  "  Consignment  Sales  account  "  or  "  Shipment  Sales  account  " 
instead  of  **  Piurchases  account." 


106  BOOKKEEPING  AND  ACCOUNTING 

(a")  Brown  Bros.  Consignment  Outward  No.  1  $2.40 

Cash  $2.40 

Prepaid  freight  on  shipment  to  Brown  Bros. 

Instead  of  charging  Freight  or  Expense  account  for  the  disburse- 
ment, observe  that  it  is  charged  to  the  Consignment  account  which, 
at  this  time,  shows  a  total  cost  to  us,  as  follows: 

Brown  Bros.  Consignment  Outward  No    1 


$390.00 
2.40 


(6)  When  the  remittance  is  received  from  Brown  Bros.,  the  following  entry 
suffices: 

Cash  $471.43 

Brown  Bros.  Consignment  Outward  No.  1  $471.43 

Received  Brown  Bros.'  check  for  net  pro- 
ceeds of  shipment,  as  per  their  Account 
Sales  dated  November  7,  19 — . 

The  account  with  Brown  Bros,  would  now  appear  as  follows: 
Brown  Bros.  Consignment  Outward  No    1 


$390.00 
2.40 


$471.43 


A  profit  of  $79.03  is  indicated  by  the  above  account.  This  profit 
may  be  left  in  the  account  until  the  end  of  the  year,  at  which  time  it 
is  transferred  to  the  Profit  and  Loss  account.  If,  however,  transactions 
of  this  kind  occur  frequently,  the  profit  on  each  separate  transaction 
may  be  transferred,  as  soon  as  the  transaction  is  closed,  to  a  Consign- 
ment Outward  account.  This  is  accomplished  by  means  of  a  simple 
Journal  entry: 

Brown  Bros.  Consignment  Outward  No.  1      $79.03 

Consignments  $79 .  03 

To  transfer  net  profit  on  first  consign- 
ment to  Brown  Bros,  to  the  Consignment 
account. 


ELEMENTARY  BOOKKEEPING  107 

Questions 

1.  What  is  double  entry  bookkeeping? 

2.  Why  are  books  kept? 

3.  What  function  does  each  of  the  following  serve: 

(a)  journalizing;   (6)  posting;   (c)  Ledger;   (d)  Trial  Balance;   (e)  State^ 
ment  of  Profit  and  Loss;   (/)  Statement  of  Assets  and  Liabilities; 
(g)  an  account;   (h)  closing  the  books;   (z)  Loss  and  Gain  account? 

4.  Differentiate  between  consignment  inward  and  consignment  outward. 

5.  What  is  meant  by  an  Account  Sales? 

6.  State  the  uses  of  a  sight  draft. 

7.  How  are  sight  drafts  considered  by  the  drawee,  that  is,  by  the  person 
on  whom  the  draft  is  drawn  and  who  pays  it? 

8.  How  are  sight  drafts  treated  by  the  drawer,  that  is,  by  the  person  who 
collects  on  it? 


Exercise  25A.     Drill 

1.  Bearing  in  mind  the  additional  accounts  mentioned  in  this  section,  orally 
journalize  the  following  transactions: 

a.  Bot.  store  fixtures  for  cash.     ($320.00) 

b.  Reed,  a  shipment  of  mdse.  on  which  we  paid  freight  charges.    ($18.00) 

c.  Paid  expressage  on  goods  sent  Brown.     ($2.00) 

d.  Insured  our  property  and  paid  premium.     ($16.50) 

e.  Bot.  books  and  stationery  for  cash.     ($22.00) 
/.  Paid  salaries  of  clerks.     ($39.00) 

g.  Paid  rent  in  cash.     ($100.00) 

h.  Water  taxes  (or  rates)  due  today.    Paid  same.     ($9.40) 

t.  Paid  Edison  Electric  Light  Co.  for  last  month's  current.     ($12.00) 
(Caution:   Why  is  it  wrong  to  debit  Edison  Electric  Light  Co.? 
What  does  a  debit  balance  in  a  personal  account  denote?    Does 
the  Company  owe  anything?) 

j.  Paid  for  towel  service.     ($2.50) 

k.  Distilled  water  bill  for  month  was  $3.75.    Paid  same. 

I.  Bot.  postage  stamps.     ($20.00) 
m.  Paid  for  window  cleaning  during  month.     ($2.00) 

n.  Gave  expressman  tip.     (25c.) 

0.  Advertised  clearance  sales  in  the  newspapers.    Paid  bill  for  this 
service.     ($40.00) 

p.  Reed.  $10.00  from  man  who  used  our  show  window  for  demon- 
stration. 

q.  Paid  telephone  bill  for  month.     ($6.75) 

r.  Collected  $1.25  for  use  of  our  telephone  by  strangers. 

s.  Drew  a  sight  draft  on  Jones.    He  paid  same.     ($100.00) 


108  BOOKKEEPING  AND  ACCOUNTING 

t.  Drew  a  sight  draft  on  Brown,  who  paid  same.     ($250.00).    Bank 

charged  for  collection  $2.00. 
u.  Drew  a  sight  draft  on  Thompson.     ($500.00) 

V.  Bank  collected  Thompson's  draft  and  gave  us  net  proceeds.  ($497.00) 
w.  Drew  a  sight  draft  on  Brown  &  Co.     ($500.00).    They  refused  to 

honor  same. 
X.  Lane  &  Co.  drew  a  sight  draft  on  us,  which  we  paid.     ($750.00) 
y.  H.  Collins  drew  a  sight  draft  on  us,  which  we  paid.     ($200.00) 
2.  Smith  &  Co.  drew  a  sight  draft  on  us.    We  refused  to  pay  same, 
because  goods  bought  from  Smith  &  Co. were  defective.    ($1,000.00) 
aa.  Shipped  merchandise  to  Rollins  Bros,  to  be  sold  on  our  account  and 

risk.    Mdse.  cost  us  $1,000.00. 
bb.  Paid  freight  on  shipment  to  Rollins  Bros.     ($5.50) 
cc.  Reed,  remittance  from  RoUins  Bros,  for  net  proceeds  of  consignment. 

($1,125.00) 
dd.  Reed,  consignment  of  goods  from  Lane  &  Wilson,  to  be  sold  for  their 

account  and  risk.    Paid  express  charges  on  same.     ($4.00) 
ee.  Sold  some  of  the  goods  from  the  Lane  &  Wilson  shipment.     ($350.00) 
ff.  Sold  the  balance  of  the  goods  from  the  Lane  &  Wilson  shipment. 

($400,00) 
gg.  Sent  Lane  &  Wilson  an  Account  Sales,  deducting  express  charges 
($4.00),  and  commission  $22.50.    Net  proceeds  ($723.50  )  in  cash. 

2.  Emplojdng  the  form  illustrated  in  Problem  2,  Exercise  20 A,  page  69, 
onter  therein  the  above  transactions. 

Exercise  25B 

No  exercise.  Deferred  until  after  Review  of  Elementary  Bookkeeping  and 
presented  as  Exercise  2QB. 

26.  REVIEW  OF  ELEMENTARY  BOOKKEEPING 

Purpose. — We  have  learned  that  the  purpose  of  bookkeeping 
is  to  record  all  business  transactions  in  order  to  separate  into  appro- 
priate accounts  what  the  business  received  and  what  it  gave  as  a  result 
of  each  transaction.  Accounts  are  collections  of  items,  each  one  of 
which  refers  to  the  same  person,  thing  or  idea,  and  all  systematically 
arranged  under  an  appropriate  title.  Thus,  Cash  account  records  all 
moneys  received  by  the  business  and  all  moneys  disbursed  by  the  busi- 
ness; customers*  accounts,  all  claims  against  them  arising  out  of  sales, 
usually,  and  all  returns  or  cancellations  of  such  claims;  Expense  account, 
all  services  received  by  the  business  and  returns  of  such  service,  etc., 
etc. 

Accounts. — It  was  agreed   to   employ  the   conventional  form  of 


ELEMENTARY  BOOKKEEPING 


109 


an  account,   namely,  a  device  consisting  essentially  of  two  money 
columns  opposite  each  other: 


It  was  fmiihermore  agreed  that  when  the  account  was  to  record 
money,  it  should  be  labeled  **  Cash  ";  when  it  was  to  refer  to  goods, 
Merchandise,  etc.,  etc.  We  also  agreed  that  the  left-hand  column 
should  be  reserved  for  receipts,  while  the  right-hand  column  should 
record  the  disbursements  only.  Debit,  abbreviated  Dr.,  was  found 
to  be  synonymous  with  left-hand  or  receipt,  and  Credit,  abbreviated 
Cr.,  with  right-hand  or  disbursement. 

Double  Entry. — ^When  we  were  asked  to  consider  a  transaction 
of  the  following  type:  bought  100  bbls.  flour  @  $8.00  for  cash,  $800.00, 
we  saw  that  we  gave  $800.00  in  cash  for  $800.00  worth  of  flour  or  mer- 
chandise received  by  us.  This  equivalence  of  exchanges  was  found 
throughout  the  world  of  business,  and  Double  Entry  Bookkeeping^ 
which  essayed  completely  to  record  all  business  transactions,  insisted 
upon  debits  (bookkeeping  expression  for  receipts)  equal  in  amount 
to  corresponding  credits  (bookkeeping  expression  for  "  giving s  ")  as  a 
result  of  every  transaction. 

It  was  pointed  out  that  the  function  of  bookkeeping  was  to  sepa- 
rate each  transaction  into  its  component  parts  so  as  clearly  to  estabUsh, 
as  a  result,  just  what  was  received  by  the  business  and  what  was  given 
by  the  business.  To  help  in  this  analysis,  the  idea  of  the  moving  picture 
screen  was  utiUzed.  Imagine  every  transaction  acted  in  the  "  movies  " 
and  "  see  "  the  receipts  and  disbursements  involved.  From  this  point 
of  view,  bookkeeping  is  remarkably  simple,  as  indeed  it  truly  is. 

The  next  step  after  analyzing  the  transaction  into  its  two  opposite 
elements,  is  to  label  or  name  these  elements  correctly.  For  example: 
"  Bought  10  bags  of  oats  @  $1.25,  for  cash."  Evidently  oats  were 
received  and  cash  given.    Accordingly,  we  have: 


Oats 


Cash 


$12.50 


$12.50 


110  BOOKKEEPING  AND  ACCOUNTING 

But  should  the  debit  account  be  called  "  Oats  '7  Was  the  expendi- 
ture for  merchandise  or  as  an  expense?  This  depends  entirely  upon  the 
purpose  for  which  the  oats  were  acquired.  The  test  is  this:  if  bought 
to  be  sold  then  it  should  be  charged  or  debited  to  Merchandise  account, 
but  if  purchased  to  be  consumed,  by  our  horses  in  this  case,  then  it 
should  be  charged  to  the  Expense  account.  We  thus  see  that  the  label- 
ing or  naming  of  the  accounts  is  almost  as  important  as  is  the  "seeing" 
of  what  was  received  and  what  was  given. 

Debit  and  Credit. — Three  ways  were  learned  to  help  in  deciding 
on  the  debits  and  credits  arising  from  business  transactions: 

(1)  Cash  the  Basis.  On  the  basis  of  the  agreement  for  the  Cash 
account,  namely: 

a!   Whenever  the  business  receives  cash,  debit  Cash  account,  and  at  the 

same  time 
a"  Credit  another  account  (or  other  accounts)  for  the  same  amount. 
b'    Whenever  the  business  gives  cash,  credit  Cash  account  and  at  the  same 

time 
b"  Debit  another  accoimt  (or  other  accounts)  for  the  same  amount. 

Examples. — 

(a)  Sold  Mdse.  for  cash,  $500.00 

Debit  Cash  a/c  because  the  business  received  money; 

Credit  Mdse.  a/c  as  the  other  account. 
(6)  Paid  rent,  $75.00 

Credit  Cash  a/c  because  the  business  gave  money; 

Debit  Expense  a/c  as  the  other  account. 
(c)  James  Riley  began  business  by  investing  cash,  $1,000.00 

Debit  Cash  a/c  because  the  business  received  money; 

Credit  James  Riley,  Prop,  a/c,  as  the  other  account. 

(2)  Substitution  Device. — But  the  Cash  account  basis  was  soon 
found  inadequate  because  it  failed  to  serve  the  needs  of  transactions 
not  involving  cash.  To  universalize  the  Cash  basis  rule,  the  Substi- 
tution Device  was  introduced.  This  device  assumes  cash  or  money 
as  being  involved  in  every  transaction,  proceeds  to  debit  and  credit 
accordingly,  and  then  substitutes  for  Cash  account  the  name  of  another 
account.    To  illustrate: 

(a)  Sold  Brown  Bros,  merchandise  on  account,  $300.00.  On  the 
assumption  that  the  sale  was  for  cash,  we  obtain: 

Cash  (?)  Merchandise 


$300.00 


$300.00 


ELEMENTARY  BOOKKEEPING 


111 


But  no  cash  was  received.  Hence,  we  must  substitute  for  Cash 
the  name  of  some  more  appropriate  account.  Brown  Bros,  is  the 
only  appropriate  title,  so  choosing  it,  we  have: 


Brown  Bros. 


Merchandise 


$300.00 


$300.00 


When  Brown  Bros,  pay  us  cash,  their  account  is  closed,  and  we 
then  have: 


Brown  Bros. 


Merchandise 


Cash 


$300.00 


$300.00 


$300.00 


$300.00 


(6)  Bought  of  L.  Best  merchandise  on  account,  $800.00.  By 
similarly  applying  the  Substitution  Device,  we  derive  the  following 
solution,  the  steps  of  which  are  clearly  indicated: 


Merchandise 


L.  Best 
■€ash-f?3 


$800.00 


$800.00 


(c)  Discounted  our  own  note  at  the  bank.     Face  $1,000.00,  discount 
$10.00,  proceeds  $990.00.     Our  first  solution  is: 


Cash 


Cash  (?) 


Notes  Payable 


$990.00 


$10.00 


$1,000.00 


As  we  did  not  receive  $10.00  in  cash,  the  title  of  some  other  account 
must  be  substituted  for  Cash  account.  We  learned  to  employ  Dis- 
count on  Notes  account  for  this  purpose,  so  our  final  solution  becomes: 


Cash 


Discount  on  Notes 


Notes  Payable 


$990.00 


$10.00 


$1,000.00 


(3)  The  Universal  Rule.     We  learned  that  there  was  still  a  more 
universal  rule  than  the  Cash  account  basis  supplemented  by  the  Sub. 


112 


BOOKKEEPING  AND  ACCOUNTING 


stitution  Device.  We  derived  this  rule  in  our  attempts  to  obtain  a 
general  formula  applicable  alike  to  all  accounts.     It  is: 

Appropriately  Named  Accoimts  Must  Be  Debited  To  Record  Wnat 
The  Business  Received,  And 

Appropriately  Named  Accounts  Must  Likewise  Be  Credited  To 
Record  What  The  Business  Gave. 

To  test  the  universahty  of  this  general  rule  for  debiting  and  credit- 
ing, let  us  consider  these  examples: 


What  the  business  received, 

What  the  business  gave, 

The  Transaction. 

therefore 

therefore 

DEBITED 

CREDITED 

(a) 

Bot.  Mdse.  for  cash 

Mdse.  a/c 

Cash  a/c 

(Goods  were  reed.) 

(Money  was  given) 

(b) 

Sold  Mdse.  for  cash 

Cash  a/c 

Mdse.  a/c 

(Money  was  reed.) 

(Goods  were  given) 

(c) 

Paid  rent 

Expense  a/c  orRenta/c 

Cash  a/c 

(A  service  reed,  in  that 

(Money  was  given) 

we  are  permitted  to 

use      the      premises. 

This  use  is  called  ex- 

pense or  rent) 

(d) 

Paid  salary  to  clerk 

Expense  a/c  or  Salary 

Cash  a/c 

a/c 

(Money  was  given) 

(A  service  reed,  in  that 

the  clerk  gave  us  his 

time,  energy,  ability, 

etc.    This  service  is 

called  expense  or  sal- 

ary) 

(e) 

Bot.   books   and   sta- 

Expense a/c  or  Sta- 

Cash a/c 

tionery  for  cash 

tionery  a/c  or  Office 

Expense  a/c 
(Goods    reed,    by    the 
business   to   be   con- 
sumed.   Such    goods 
are  called  expenses,  or 
as  indicated) 

(Money  was  given) 

(/) 

Retd.   stationery  and 

Cash  a/c 

Expense  a/o  or,  etc. 

reed,  cash  therefor 

(Money  was  reed.) 

(Goods    for    consump- 
tion, given  or  retd.  by 
the  business) 

ELEMENTARY  BOOKKEEPING 


113 


What  the  business  received, 

What  the  business  gave. 

The  transaction. 

therefore 

therefore 

DEBITED 

CREDITED 

(?) 

Sold  T.  Smith  Mdse. 

T.  Smith  a/c 

Mdse.  a/c 

on  a/c 

(Reed,  a  claim  against 
Smith  which  he  must 
redeem) 

(Goods  were  given) 

(A) 

Smith   gave   us    cash 

Cash  a/c 

T.  Smith  a/c 

in  full  of  a/c 

(Reed,  money) 

(Gave  back  the  claim 
against  Smith) 

(i) 

Sold  Mdse.  to  Brown 

Notes  Receivable  a/c 

Mdse.  a/c 

on  his  10-day  note 

(Reed,  a  written  prom- 
ise to  pay  us  money) 

(Gave  goods) 

0') 

Brown  paid  us   cash 

Cash  a/c 

Notes  Receivable  a/c 

to  redeem  his  note 

(Reed,  money) 

(Gave  note  back  as  a 

due  today 

receipt  to  Brown) 

(k) 

Bot.   Mdse.   from   C. 

Mdse.  a/c 

C.  Lyons  a/c 

Lyons  on  a/c 

(Reed,  goods) 

(Gave  a  claim  against 
us,  i.e.,  an  oral  prom- 
ise  to  pay  for  the 
goods  bot.  by  us) 

(.1) 

Gave    C.    Lyons   our 

C.  Lyons  a/c 

Notes  Payable  a/c 

30-day  note  in  full 

(Reed,   back   our   oral 

(Gave      our      written 

of  a/c 

promise  or  book  claim 

promise  in  exchange 

against  us) 

for  our  oral  one  there- 
by canceled) 

(m) 

Paid  our  note  favor  of 

Notes  Payable  a/c 

Cash  a/c 

C.  Lyons  due  today 

(Reed,  back  our  written 
promise  as  a  receipt) 

(Gave  money) 

(n) 

M.  Crane  began  busi- 

Cash a/c 

M.  Crane,  Prop,  a/c 

ness    by    investing 

(Reed,  money) 

(Gave    Mr.    Crane    a 

cash 

claim  against  the 
business  somewhat 
similar  to  the  claim 
given  to  a  creditor  to 
whom  we  owe  money 
for  a  purchase  on  acct.) 

(0) 

Mr.  Crane  drew  mon- 

M. Crane,  Prop,  a/c 

Cash  a/c 

ey  for  his  personal 

(Reed,  return  of  part  of 

(Gave  money) 

use 

claim      against      the 

businjess) 

114 


BOOKKEEPING  AND  ACCOUNTING 


What  the  business  received, 

What  the  business  gave, 

The  transaction. 

therefore 

therefore 

DEBITED 

CREDITED 

(p) 

M.  Crane  sent  some 

M.  Crane,  Prop,  a/c 

Mdse.  a/c 

Mdse.  home  for  his 

(Reed,  return  of  part  of 

(Gave  goods) 

family 

claim) 

(?) 

M.  Crane  began  busi- 

Cash a/c  $2,000.00 

M.  Crane,  Prop,  a/c 

ness     by     investing 

(Reed,  money) 

$3,500.00 

cash   $2,000.00   and 

Mdse.  a/c  $1,500.00 

(Gave  Mr.  Crane  a  claim 

Mdse.  $1,500.00 

(Reed,  goods) 

against  the  business) 

(r) 

Discounted     at     the 

Cash  a/c  $985.00 

Notes  Receivable  a/c 

bank  Smith's  note. 

(Reed,  money) 

$1,000.00 

Face     $1,000,     dis- 

Discount on  Notes  a/c 

(Gave   the   note,    pre- 

count $15.00 

$15.00 

viously  reed,  from  a 

(Reed,  the  use  of  money 

customer,  Mr.  Smith) 

from  the  date  the  note 

was  discounted  until 

its  date  of  maturity. 

Such  services  are  col- 

** 

lected  in  an  account 
labeled    Discount  on 
Notes) 

is) 

Discounted    my    own 

Cash  a/c  $985.00 

Notes  Payable  a/c 

90-day  note  at  the 

(Reed,  money) 

$1,000.00 

bank.    Face  $1,000, 

Discount  on  Notes  a/c 

(Gave  our  promissory 

discount  $15.00 

$15.00 
(Reed,  use  of  money) 

note) 

(0 

Paid   for   goods   bot. 

L.  Macy  a/c  $350.00 

Cash  a/c  $343.00 

from  L.   Macy  last 

(Reed,  return  of  claim 

(Gave  money) 

week,    $350.00    less 

Macy  held  against  us) 

Dis.  on  Pur.  a/c  $7.00 

2% 

(Gave  use  of  money  by 
paying  invoice  before 
it  was  due) 

in) 

R.  C.  Morse  paid  us 

Cash  a/c  $343.00 

R.  C.  Morse  a/c 

$343.00  in  full  of  in- 

(Reed, money) 

$350.00 

voice  of  goods  sold 

Discount  on  Sales  a/c 

(Gave  back  to  him  our 

him  last  week,  $350, 

$7.00 

claim  against  him) 

less  2% 

(Reed,  the  use  of  money 
in  that  Morse  paid  his 
bill  ahead  of  time) 

ELEMENTARY  BOOKKEEPING         lU 

Titles  of  Accounts. — It  should  be  clear  from  the  above  analysis 
of  twenty-one  typical  transactions  that  the  general  rule  for  deter- 
mining debit  and  credit  appears  to  be  universal.  As  a  matter  of  fact, 
there  are  no  exceptions  to  it,  so  the  student  is  urged  to  use  it  exclu- 
sively. The  only  real  difficulty  arises  in  connection  with  assigning  an 
appropriate  title  to  the  account  after  deciding  that  it  is  a  debit  or  a 
credit.  Here  practice  is  essential,  and  for  that  purpose  the  drills  and 
exercises  provided  should  be  conscientiously  employed. 

To  remove  any  exaggerated  fear  as  to  the  difficulty  involved  in 
naming  the  accounts,  a  few  analogies  are  in  order.  You  can  easily 
distinguish  between  a  boy  and  a  full  grown  man,  but  you  will  not  be 
able  to  call  either  by  name  until  you  learn  to  know  them.  Or,  you 
will  recognize  this  object  as  a  rose,  but  wdll  be  imable  to  decide  whether 
it  is  a  Richmond  rose  or  a  MacArthur  rose,  without  some  practice. 
Again,  without  practice,  you  may  not  be  able  to  decide  whether  a  certain 
grain  is  wheat  or  rye.  This  naming  process  is  not  any  harder  than  the 
learning  to  know  the  names  of  your  classmates,  your  neighbors  or  your 
customers,  because  after  all  is  said,  there  are  less  than  a  dozen  which 
will  prove  difficult  at  all. 

Examples  of  what  may  prove  difficult  at  first  are  (a)  withdrawals 
by  the  proprietor,  (6)  the  amount  allowed  to  a  customer  for  prepaying 
his  debt  to  us,  and  (c)  subdivisions  of  the  Expense  account.  In  order 
to  show  that  the  problem  of  naming  is  easier  than  often  supposed,  let 
us  consider  the  items  referred  to. 

(a)  Withdrawals  by  the  proprietor: 

"  L.  Jones  took  money  for  personal  expenses,  $25.00."  The  student 
may  be  inclined  to  solve  the  transaction  thus: 

Expense  Cash 


$25.00 


$25.00 


But  he  will  soon  learn  to  distinguish  between  expenses  of  the  busi- 
ness and  withdrawals  by  the  owner  of  the  business  for  the  owner's 
private  or  personal  reasons.  Such  withdrawals  decrease  the  claim 
of  the  proprietor  against  his  business,  and  should  be  shown  as  a  reduc- 
tion of  investment.  This  is  accomplished  by  charging  the  proprietor's 
account,  because,  as  we  say  in  applying  the  general  rule  for  debiting 
and  crediting,  "  the  business  received  sl  return  of  a  part  of  the  owner's 
claim  against  the  business."    The  task  for  the  beginner »  then,  is  to 


116  BOOKKEEPING  AND  ACCOUNTING 

associate  the  fact  whitii  he  can  *'  see  "  on  the  screen  with  the  technical 
bookkeeping  entry  therefor  so  as  to  obtain  in  this  case : 

L.  Jones,  Prop.  Cash 


$25.00 


$25.00 


(6)  Discounts  allowed  by  us: 

Smith,  who  bought  goods  from  us  last  week,  amounting  to  $500.00, 
pays  us  cash  in  full,  less  2%.  The  transaction  sometimes  reads  "  Smith 
paid  his  invoice  and  we  gave  him  an  allowance  of  2%,"  etc.  Confusion 
arises  in  interpreting  *'  we  gave  him ''  without  analysis  and  thought. 
As  soon  as  the  transaction  is  analyzed,  we  see  that  we  received  money 
before  it  was  due,  therefore  money  and  the  use  of  money,  in  return 
for  which  we  gave  or  returned  the  claim  against  Smith. 

(c)  Subdivisions  of  Expense  account: 

Shall  certain  expenditures  be  charged  to  Rent  account  or  to  Salary 
account,  or  to  Freight  and  Expressage  account,  or  shall  all  of  them  be 
debited  to  Expense  account?  Do  not  worry  about  these  matters, 
for  either  charge  is  correct.  It  all  depends  upon  how  the  information 
regarding  expenses  is  desired;  if  the  total  of  expenses  is  sufficient, 
the  Expense  account  alone  is  employed,  but  if  it  is  desired  to  know  for 
what  classes  of  items  expenses  were  incurred,  then  as  many  accounts 
as  are  required  may  be  employed. 

The  Journal. — ^As  an  aid  to  debiting  and  crediting,  a  Journal  is 
employed.  In  this  book  appears  a  chronological  summary  of  all  trans- 
actions, and  in  addition,  an  indication  of  the  accounts  to  be  debited  and 
credited.  This  separation  into  debits  and  credits  is  similar  to  what  is 
accomplished  by  analyzing  the  transactions  into  debits  and  credits, 
but  in  the  Journal  the  result  is  expressed  in  a  more  technical  and  formal 
way  than  in  the  analysis  sheets  which  we  learned  to  use  earlier.  Though 
the  Journal,  both  in  its  form  and  in  its  use,  will  be  modified  by  further 
study,  journalizing  (the  process  of  determining  debits  and  credits) 
is  of  such  great  importance  that  no  real  progress  can  be  made  in  book- 
keeping or  accounting  until  it  is  mastered. 

The  Journal  is  one  of  the  so-called  books  of  original  entry,  other 
examples  of  which  will  be  discussed  elsewhere,  because  in  it  appears  the 
first  or  original  record  of  transactions.  These  entries  are  then  trans- 
ferred or  posted  from  the  Journal  to  the  indicated  accounts. 

The  Ledger. — The  accounts  are  kept  in  a  book  called  the  Ledger. 
If  the  Journal  is  a  book  of  original  entry  then  the  Ledger  is  a  book  of 


ELEMENTARY  BOOKKEEPING  117 

subsequent  or  of  final  entry.  The  Ledger  is  consulted  most  frequently, 
because  in  it  are  found  sumraarized  all  transactions  of  the  business, 
conveniently  grouped  in  accounts  appropriately  named.  To  facihtate 
reference  to  any  particular  account,  a  Ledger  index  is  arranged.  This 
alphabetical  index  enables  one  readily  to  find  desired  accounts.  Though 
no  erasures  should  appear  in  the  Ledger  for  aesthetic  reasons,  it  is 
more  important  that  none  be  made  in  books  of  original  entry,  because 
it  is  the  latter  which  are  admitted  as  evidence  in  court  proceedings. 
Surely,  it  is  unnecessary  to  dwell  upon  the  bad  effect  produced  on  the 
mind  of  a  judge  or  jury  by  an  erasure.  To  avoid  the  suspicion  which 
erasures  do  create,  corrections  should  be  made  by  neatly  crossing  out 
the  items  to  be  omitted,  preferably  in  red  ink,  and  substituting  cor- 
rections carefully  explained. 

The  Trial  Balance. — As  each  transaction  results  in  equal  debits 
and  credits,  the  sum  of  all  debits  should  equal  the  .smn  of  all  credits. 
This  principle  is  utiHzed  in  testing  the  correctness  of  the  Ledger.  But 
as  equals  subtracted  from  equals  result  in  equals,  we  use  a  fist  of  all  the 
balances  (instead  of  all  the  totals)  of  all  the  accounts  as  a  test  of  the 
correctness  of  the  Ledger. 

Though  the  Ledger  accounts  cannot  be  correct  unless  the  Trial 
Balance  shows  the  total  of  all  the  debit  balances  as  equal  to  the  total 
of  all  the  credit  balances,  the  student  must  be  cautioned  against  rely- 
ing absolutely  on  the  Trial  Balance  test.  The  Trial  Balance  may 
"  prove,"  and  errors  exist  nevertheless.  This  subject  is  discussed  at 
length  in  texts  on  Auditing,  but  it  will  be  well  here  to  point  out  three 
common  types  of  errors  which  the  Trial  Balance  will  not  disclose: 

(a)  Omission  of  transactions: 

If  the  bookkeeper  or  salesman  fails  to  make  any  record  of  a  sale 
on  account,  for  example,  then  neither  a  debit  nor  a  credit  will  appear 
in  the  Ledger.  It  is  just  possible  that  the  entire  matter  will  be  forgotten. 
The  Trial  Balance  will  not  indicate  this  sort  of  error,  for  the  equilibrium 
between  debits  and  credits  has  not  been  disturbed. 

(6)  Failure  to  post  an  entire  transaction: 

Bookkeepers  sometimes  fail  to  post  the  debit  and  the  corresponding 
credit  for  an  entire  transaction,  especially  when  the  entry  is  the  last 
one  on  the  Journal  page.  This  error  would  not  be  detected  by  the 
Trial  Balance,  also  for  the  reason  that  the  equiUbrium  between  the 
Ledger  debits  and  credits  would  not  be  affected. 

(c)  Posting  to  the  correct  side  but  to  a  wrong  Ledger  account. 

Only  too  frequently  the  careless  bookkeeper  may  charge  one  account 
instead  of  another.    Thus,  though  the  Journal  entry  indicates  that 


118  BOOKKEEPING  AND  ACCOUNTING 

Frank  Riley's  account  be  charged  for  a  sale,  the  bookkeeper  might  debit 
Riley  &  Co/s  account  or  an  account  which  bears  even  less  resemblance 
to  the  correct  one.  The  Trial  Balance  would  not  disclose  such  errors 
because  the  sum  of  the  debits  in  the  Ledger  would  nevertheless  be  equal 
to  the  sum  of  all  the  credits.  Similarly,  if  postings  were  made  to  the 
credit  side  of  the  wrong  Ledger  account,  the  Trial  Balance  could  not 
detect  the  error. 

Trial  Balance  Errors. — Before  passing  from  this  subject  it  is  well 
very  briefly  to  indicate  the  positive  service  rendered  by  the  Trial 
Balance: 

(a)  It  provides  a  convenient  sunamary  of  the  Ledger. 

(6)  It  tests  the  correctness  of  all  postings,  limited,  however,  as 
pointed  out  above. 

C'?)  It  indicates  the  nature  of  errors,  other  than  those  which  it  can- 
not  \isclose,  of  course.     Thus,  to  consider  four  examples: 

(1)  If  the  sides  of  the  Trial  Balance  differ  by  one  cent,  ten 
cents,  one  dollar,  ten  dollars,  or  some  other  unit  figure,  experi- 
ence suggests  that  the  error  consists  either  of  an  error  in  addition 
of  the  sides  of  an  account  or  in  obtaining  the  balance  of  the  ac- 
count. 

(2)  What  would  be  the  result  shown  by  the  Trial  Balance 
if  the  bookkeeper  failed  to  post  the  debit  part  of  the  entry?  A 
failure  on  the  part  of  the  Trial  Balance  to  prove  suggests  that 
possibly  one  side  of  an  entry  was  not  posted.  The  omission 
will  be,  of  course,  on  the  smaller  side,  and  the  amoimt  involved 
is  sought  by  inspecting  debits  of  the  book  of  original  entry  for 
an  amount  equal  to  the  difference  between  the  Trial  Balance 
totals  of  debits  and  credits. 

(3)  If  a  debit  item  is  posted  to  the  credit  side  the  Trial  Bal- 
ance will  result  in  having  a  credit  total  greater  than  the  debit 
total  by  exactly  twice  the  amount  of  the  error.  Test  this  state- 
ment for  yourself  to  prove  it,  and  then  explain  it  to  your  own 
satisfaction.  This  fact  is  utilized  by  the  bookkeeper,  who,  if 
he  finds  one  side  of  the  Trial  Balance  greater  than  the  other, 
seeks  an  item  in  his  book  of  original  entry  just  half  as  large  as 
the  one  which  may  have  been  posted  to  the  wrong  side. 

(4)  If  the  difference  between  the  debit  and  credit  totals  of 
the  Trial  Balance  is  exactly  divisible  by  nine,  transposition  of 
figures  is  indicated.  $102.92  posted  as  $102.29  will  result  in  a 
difference  of  63  cents,  which  divided  by  9  gives  7.    The  numbers 


ELEMENTARY  BOOKKEEPING  119 

transposed  or  interchanged  which  differed  from  each  other  by 
7  are  only  0  and  7,  1  and  8,  2  and  9.  Tables  may  be  prepared 
which  show  the  index  figure  corresponding  to  each  possible 
transposition.  The  bookkeeper  then  goes  through  his  books  of 
original  entry  to  ascertain  whether  any  such  item  has  actually 
been  posted  incorrectly. 

In  practice,  neither  the  bookkeeper  nor  the  accountant  spends 
much  time  in  seeking  errors  by  means  of  the  principles  just  discussed. 
In  case  the  Trial  Balance  suggests  the  existence  of  an  error  which  is  not 
readily  discovered,  the  entire  posting,  totahng  and  balancing  is  re^ 
checked.  Indeed,  even  if  the  Trial  Balance  proves,  it  is  well  to  check 
back  the  entire  work  "  to  make  assurance  doubly  sure,"  for  as  the  stu- 
dent now  knows,  the  Trial  Balance  is  not  a  positive  proof  of  correct- 
ness. 

Progress  and  Condition  of  the  Business. — Though  the  narrow 
piu'pose  of  bookkeeping  is  systematically  to  record  business  transactions 
and  to  analyze  them  into  accounts,  the  wider  aim  of  bookkeeping  is  to 
disclose  the  progress  and  the  condition  of  the  business.  After  journal- 
izing the  transactions  and  then  posting  the  entries  to  the  accounts  of 
the  Ledger,  a  Trial  Balance  is  taken  to  summarize  the  Ledger  and  test 
its  correctness.  Finally,  the  statements  are  prepared  and  though  these 
vary  greatly  in  form,  the  essential  principles  hold  true.  The  Profit 
and  Loss  Statement  arranges  the  items  which  show  losses  or  gains  so  as 
to  produce  the  net  profit.  The  Statement  of  Assets  and  LiabiHties 
arranges  all  the  assets  (what  the  business  owns)  and  opposes  to  these 
the  HabiHties  (what  the  business  owes)  so  as  to  result  in  the  net  capital 
or  net  worth.  The  correctness  of  the  net  capital  is  proved  by  adding 
the  net  profit  to  the  net  investment  or  by  deducting  the  net  loss  from 
the  net  investment. 

Closing  the  Books. — ^After  ascertaining  the  progress  and  condition 
of  the  business,  it  may  be  desired  to  incorporate  in  the  books  the  results 
shown  by  the  two  statements.  In  other  words,  it  may  be  desired  to 
place  the  net  profit  and  the  net  capital  in  the  Ledger.  To  place  the  net 
profit  in  the  books,  it  is  necessary  to  open  a  new  account,  the  Loss  & 
Gain  account,  and  to  transfer  to  this  account  the  losses  and  the  gains 
shown  by  the  individual  accoxmts,  such  as  Expense,  Merchandise,  etc. 
The  Loss  and  Gain  account  will  now  correspond  to  the  Profit  and  Loss 
Statement.  In  order  to  transfer  the  balance  of  the  Loss  and  Gain 
account,  a  final  Jom-nal  entry  is  necessary  which  not  only  transfers 
the  net  profit  or  the  net  loss  to  the  proprietor's  account,  but  which 


120  BOOKKEEPING  AND  ACCOUNTING 

also  closes  the  former  account.  The  last  step  consists  of  bringing  down 
the  net  capital,  the  balance  of  the  proprietor's  account. 

Balancing  Accounts. — Though  the  books  are  generally  closed  once 
each  year,  individual  accounts  may  be  closed  or  balanced  much  oftener. 
Thus,  the  Cash  account  may  be  balanced  monthly,  or  oftener,  for 
convenience.  Personal  accounts  when  entirely  settled,  may  also  be 
closed  or  ruled  off.  But  the  formal  closing  of  personal  accounts  is  no 
longer  universal,  while  the  use  of  red  ink,  although  still  employed,  is 
rapidly  falling  into  disuse. 

Division  of  the  Merchandise  Account. — Instead  of  employing  one 
Merchandise  account,  it  is  better  to  use  three  accounts:  Merchandise 
Inventory  for  the  goods  on  hand  at  the  beginning  and  at  the  end  of 
periods.  Merchandise  Purchases  for  goods  bought  and  returned  by  us, 
and  Merchandise  Sales  for  goods  sold  and  returned  to  us.  The  employ- 
ment of  these  three  accounts  facihtates  the  obtaining  of  such  useful 
information  as,  for  example,  the  net  purchases  for  any  given  period, 
the  net  sales  for  the  corresponding  period,  and  the  profit  on  the  sales 
for  the  same  period. 


SUMMARY 

Bookkeeping  has  been  defined  as  the  science  of  accounts.  Double 
entry  bookkeeping  systematically  records  all  the  transactions  of  a  busi- 
ness so  as  to  show  what  the  business  gave  for  what  it  received  in  each 
transaction.  This  record  is  first  made  in  some  book  of  original  entry 
like  the  Journal,  where  a  brief  statement  of  the  occurrence  is  made 
together  with  an  analysis  of  the  exchange,  separating  what  was  received 
into  appropriately  designated  debits  and  what  was  given  into  equally 
well-named  credits.  These  debits  and  credits  are  then  posted  to  the 
accounts  of  the  Ledger.  Subsequently,  these  accounts  are  analyzed  so 
as  to  disclose  the  income  and  expenses  of  the  business  resulting  in  the 
net  profit  or  net  loss;  and  a  further  analysis  is  made  so  as  to  separate 
what  the  business  owns  from  what  it  owes,  thus  leading  to  the  net 
capital. 

Review  Questions 

1.  What  is  bookkeeping? 

2.  Could  a  business  man  who  had  not  kept  any  books  ascertain  how  much 
he  had  made  during  the  year?    Explain. 

3.  Upon  what  principle  is  double  entry  bookkeeping  based? 

4.  Give  a  general  rule  for  debiting  and  crediting. 


ELEMENTARY  BOOKKEEPING  12X 

5.  Show  that  the  rule  applies  to  the  following  transactions: 

(a)  Investment  of  merchandise  and  cash  by  the  proprietor. 
(6)  Redeeming  our  promissory  note. 

(c)  Paying  premium  on  an  insurance  policy. 

(d)  Discounting  at  the  bank  a  customer's  note  which  we  owned. 

(e)  Return  of  cash  to  us  by  the  express  company  for  an  overcharge. 

6.  What  is  the  function  of  the  Trial  Balance? 

7.  Point  out  the  kind  of  errors  which  the  Trial  Balance  cannot  detect. 

8.  What  is  the  essential  difference  between  the  Profit  and  Loss  Statement 
and  the  Statement  of  Assets  and  Liabilities? 

9.  Show  how  one  statement  is  a  check  on  the  other. 

10.  On  which  side  of  the  Trial  Balance  would  you  expect  to  find  the  balance 
of  each  of  the  following  accounts?    Give  your  reasons  fully  in  each  case: 

(a)  Cash  account. 

(6)  Merchandise  Sales  account. 

(c)  Expense  account. 

(d)  Proprietor's  account, 

(e)  Discount  on  Purchases  account. 
(/)  Notes  Receivable  account. 

(g)  Customer's  account. 

(h)  Notes  Payable  account. 

(i)  Furniture  and  Fixtures  account. 

11.  What  function  does  the  Journal  perform? 

12.  Carefully  rule  a  Journal  sheet.  Use  plain,  unruled  paper.  State  what 
each  column  is  used  for. 

13.  What  is  the  Ledger? 

14.  On  plain  paper,  rule  up  a  Ledger  sheet  and  state  how  each  colunm  is 
used. 

15.  Why  should  no  erasures  be  made  in  books  of  original  entry?  How 
should  errors  be  corrected? 

16.  Would  you  rather  sell  Jones  merchandise  on  account  or  on  his  30-day 
note?    Why? 

17.  What  is  the  difference  between  an  ordinary  promissory  note  and  single- 
name  paper? 

18.  Bookkeeping  is  sometimes  defined  as  "  the  science  of  accoimts."  Give 
your  own  definition. 

19.  If  your  employer  could  make  ten  per  cent  a  year  on  his  money,  would 
you  advise  him  to  pay  an  invoice,  the  terms  of  which  were  "  2/10,  n/60  "  in  ten 
days  or  wait  sixty  days?    Explain  fully. 

20.  What  are  the  requisites  of  a  good  Journal  explanation? 

21.  State  how  to  obtain  the  balance  of  any  Ledger  account.  Explain 
with  sufficient  fullness  to  enable  a  beginner  to  do  the  work  correctly. 


122 


BOOKKEEPING  AND  ACCOUNTING 


22.  Criticize  the  following  definition  of  selling  on  account:    "  It  moans 
giving  away  some  goods  for  nothing." 

23.  How  often  should  a  Trial  Balance  be  taken? 

24.  How  often  should  the  books  be  closed? 

25.  Define  asset,  liability,  loss,  gain,  account,  buying  on  account,  closing 
the  books,  Trial  Balance,  net  investment,  net  capital. 


Exercise  26A.    Drill 


Sold  to  L.  R.  Johnson, 

2100  Broadway,  City. 


Terms  2/10,  n/30. 


HENRY  M.  LANE 

Grocer  and  Fruiterer 

80  Front  Street. 


New  York,  Nov.  5,  1{ 


20 
5 

1 


lbs.  Rio  Coffee 
lbs.  Mixed  Tea 
case  Pres.  Cherries 


18 

3 

60 

) 

35 

1 

75 

4 

25 

9 

60 


2. 


(a)  Who  sold  these  goods?    When? 

(6)  Who  bought  these  goods? 

(c)  Show  the  entry  in  Mr.  Johnson's  books  on  Nov.  5. 

(rf)  Show  the  entry  in  Mr.  Lane's  books  on  Nov.  5. 

(e)  If  the  bill  was  paid  on  Nov.  15,  show  the  entry  in  Mr.  Johnson*s 

books. 
(/)  Show  the  entry  in  Mr.  Lane's  books  the  same  day. 
(g)  If  the  bill  was  paid  on  Dec.  5,  show  Mr.  Johnson's  entry. 
Qi)  Show  the  entry  in  Mr.  Lane's  books  the  same  day. 


$2000.00 


New  York,  Sept.  8,  19 — 


Two  months  after  date,  I  promise  to  pay 
H.  C.  Beadle or  order 

Two  thousand :::rr::rr:rr:2:r:rrrr2:rrr:^^^ 

Value  received. 

No.  26    Due  Nov.  8,  19 —  Chas.  L.  Brooks. 


ELEMENTARY  BOOKKEEPING 


123 


(o)  Who  is  the  maker  of  this  note?    Why  did  Mr.  Brooks  promise  to 
pay  to  Mr.  Beadle? 

Who  is  the  payee?    Why  so  called? 

Show  the  entry  in  Mr.  Brooks'  books  on  Sept.  8. 

Show  Mr.  Beadle's  entry  on  the  9th,  when  he  received  it  by  mail. 

On  Sept  18,  Mr.  Beadle  had  the  note  discounted  at  his  bank,  The 
Fourth  National.     Rate  6%.     Find  the  net  proceeds. 
(/)  Show  the  entries  in  Mr.  Beadle's  books  at  this  time. 
(g)  Show  his  indorsement  on  the  note. 
{h)  What  entry  does  Mr.  Brooks  make  at  the  same  time?    Why? 

On  Nov.  8,  19 ,  the  note  is  paid.    By  whom? 

Show  the  entry  in  Mr.  Brooks'  books  on  Nov.  8. 

Show  Mr.  Beadle's  entry  at  the  same  time.    Why? 

If  the  note  had  not  been  discounted,  what  would  Mr.  Beadle's  entry 
have  been  on  Nov.  8? 


(6) 
(c) 
(d) 
(e) 


ik) 
(0 


New  York,  Nov.  21, 19 — 


ROBERT  BUKMAN 
High  Grade  Stationery 
65  Pearl  Street 
Sold  to  L.  R.  Johnson,  2100  Bway.,  City. 


Terms:  Cash 


Ledger 

Journal 

Memo.  Books 

doz.  No.  201  Pencils 


PAID 

11/21/19— 
Robert  Bukman 


2 

50 

1 

60 

15 

90 

35 

1 

40 

6 

40 


(a)  Does  Mr.   Bukman  refer  to  the  goods  listed  in  this  invoice  as 

"merchandise  "  or  "  expense  "  ?    Explain  fully. 
(6)  Show  the  entry  in  Mr.  Bukman's  books. 

(c)  Show  the  entry  in  Johnson's  books. 

(d)  On  Nov.  22,  2  doz.  pencils  were  returned  and  cash  returned.    Show 

the  entry  in  the  seller's  books. 

(e)  Show  the  entry  in  the  buyer's  books. 


124 


BOOKKEEPING  AND  ACCOUNTING 


4.  On  Sept.  8,  Mr.  Jones  should  have  been  charged  $32.28  instead  of  $23.28. 
The  error  was  caused  by  transposing  the  item  when  posting  it  from  the  Journal. 
Make  the  correction. 

L.  C.  Jones,  Lakewood,  N.  J. 


19— 

19— 

June 

18 

J 

7 

308 

00 

July 

7 

J 

9 

308 

00 

July 

3 

11 

34 

00 

Aug. 

8 

16 

34 

00 

Sept. 

8 
21 

21 
24 

23 
105 

•  28 
11 

5.  On  Oct.  15,  we  sold  F.  D.  Brewster,  2/10,  n/30,  200  bbls.  flour  @  $9.00 
and  1,000  bu.  oats  @  60c.    The  entry  made  in  the  Journal  was  as  follows: 


Oct.  15 


F.  D.  Brewster 
Mdse.  Sales 


Sold  2/10,  n/30, 
200  bu.  oats  @  60c. 
1,000  bbls.  flour 

@  $9.00 


9,120 


00 


9,120 


00 


You  discovered  the  error  as  you  were  about  to  post  the  entry.    What  would 
you  do  about  it? 

6.  In  checking  back  your  posting,  you  discover  that. you  credited  L.  C. 
Mace  &  Co.  instead  of  H.  R.  Macy  &  Co.  for  a  payment  of  $800.00  less  2%, 
received  Dec.  8,  19 .    How  would  you  rectify  the  error? 

7.  The  following  Trial  Balance  was  obtained  from  the  "  T  "  accounts  of 
Problem  3,  Exercise  14A,  page  50. 


"  Student/'  Prop. 
Cash  • 
Expense 
Mdse. 

Notes  Receivable 
Notes  Payable 
H.  Jameson 
R.  A.  Franke 
C.  T.  Clynne 
Amos  Trickert 
H.  Levey  &  Co. 


$4,977.50 


$5,130.00 

160.00 

540.50 

500.00 

1,000.00 

230.00 

400.00 

900.00 

82.00 

140.00 

$6,552.50 

$7,507.50 

Suggest  the  probable  nature  of  the  error.    Test  your  surmise. 


ELEMENTARY  BOOKKEEPING  126 

8.  What  kind  of  error  is  indicated  by  failure  to  prove  of  the  following  Trial 
Balance;  Problem  1,  Exercise  14A,  page  49. 


Frank  R.  Crane,  Cap. 

$3,880.00 

Mdse. 

660.00 

Expense 

$663.00 

Thomas  Browne 

1,500.00 

Smith  &  Foley 

1,400.00 

Lane  &  Court 

570.00 

Smith  &  Smith 

240.00 

Notes  Receivable 

1,800.00 

Cash 

3,571.00 

James  Talcott 

2,850.00 

Smiley  &  Co. 

700.00 

Babcock  &  Co. 

700.00 

Notes  Payable 

1,000.00 

$9,744.00 

$9,690.00 

Is  your  belief  correct?  Test  it  by  means  of  the  Ledger  balances  resulting 
from  transactions  in  the  given  exercise. 

9.  Orally  journalize  the  following  transactions: 

(a)  Bot.  Mdse.  $1,000.00;  paid  cash  $300.00,  balance  on  account. 
lb)  Paid  taxes  $34.75. 

(c)  Reed.  $5.00  for  use  of  window  by  belt  demonstrator. 

(d)  Advertised  Saturday's  sale  in  newspaper.  The  cost,  $15.00,  was  paid 
in  cash. 

(e)  A  clerk  took  some  goods  ($3.00)  home  for  his  own  use.  His  weekly 
salary  is  $15.00.    Paid  him  salary  for  week,  $12.00. 

(/)  Had  new  shelves  put  up  in  store.  The  carpenter  charged  $7.50  for 
materials  and  $14.00  for  labor.     Paid  him  in  cash. 

{g)  Johnson's  60-day  note  for  $300.00  is  due  today.  He  gave  it  to  us 
two  months  ago  in  payment  of  his  account.  He  now  asks  us  to  take 
his  new  30-day  note  in  payment  of  the  one  which  he  should  pay 
today.  We  do  so  as  a  special  favor  to  him.  What  entry  do  we  make? 
What  entry  does  he  make? 

10.  L.  C.  Jones  began  business  a  year  ago  with  a  cash  investment  of 
$5,000.00.  He  drew  out  during  the  year  for  his  personal  use  $150.00.  Today, 
at  the  end  of  his  first  year  in  business,  his  assets  equal  $18,500.00  and  his  liabil- 
ities $10,200.00. 

(a)  How  much  did  he  gain? 


126  BOOKKEEPING  AND  ACCOUNTING 

(6)  What  per  cent  did  he  make  on  his  investment?    On  his  net  invest- 
ment? 

(c)  Assume  that  his  net  sales  for  the  year  amounted  to  $24,200.00. 
What  per  cent  of  his  net  sales  was  his  net  profit? 

(d)  The  Profit  and  Loss  Statement  was  as  follows: 

Mdse.  Purchases  during  the  year  $19,935 .  00 

Less  Inventory  1,800 .  00 

Cost  of  Mdse.  Sold  $18,135.00 

Proceeds  from  Sales  of  Mdse.  $24,200 .  00 

Gross  Profit  carried  down  6,065 .  00 


$24,200.00         $24,200.00 


Gross  Profit  brought  down  6,065.00 

Expenses  for  year  $2,800 .  00 

Less  Inventory  370.00 

2,430.00 
Discount  on  Sales  1 10 .  00 

Discount  on  Notes  75 .  00 


$2,615.00 
Net  Profit  3,450.00 


$6,065.00  $6,065.00 


What  per  cent  of  the  sales  was  the  expenses? 

11.  Mr.  Simpson's  assets  amount  to  $31,000.00,  his  Uabilities  to  $18,500.00; 
net  investment  was  $20,000.00. 

(a)  What  is  his  net  loss? 

(6)  What  per  cent  of  his  net  investment  is  his  net  loss? 

12.  H.  M.  Karp's  net  investment  was  $5,000.00.    His  assets  amount  to 
$2,400.00,  his  liabilities  to  $3,600.00. 

(a)  What  happened  to  his  investment? 

(6)  A  concern  is  said  to  be  insolvent  when  its  liabilities  are  greater  than 

its  assets,  i.e.,  when  its  funds  are  insufficient  to  pay  its  creditors. 

How  much  does  Mr.  Karp's  net  insolvency  amount  to? 


ELEMENTARY  BOOKKEEPING 


127 


(c)  How  many  cents  on  the  dollar  can  Mr.  Karp  pay? 

13.  From  the  following  Trial  Balance  as  of  May  31,  19 — ,  prepare  a  Profit 
and  Loss  Statement  and  a  Statement  of  Assets  &  Liabilities: 


Philip  Silver,  Capital 

$2,400.00 

Cash 

$1,500.00 

Mdse. 

1,330.00 

Expense 

455.00 

Discount  on  Sales 

85.00 

Discount  on  Purchases 

110.00 

Notes  Receivable 

1,000.00 

James  Lucky 

1,300.00 

John  Light 

900.00 

Frank  Dwyer 

520.00 

Arthur  Wright 

280.00 

Brown  Bros. 

830.00 

L.  Lansing 

1,370.00 

$6,040.00 

$6,040.00 

Merchandise  Inventory,  $1,200.00. 

(a)  Mr.  Silver  began  business  two  months  ago.  Do  you  think  his 
business  is  successful?    Discuss  and  explain  fully. 

(6)  How  would  you  modify  your  answer  if  Mr.  Silver  had  been  in  busi- 
ness for  five  years? 


14.  Analyze  each  of  the  accounts  shown  in  the  Trial  Balance  of  Problem  13, 
above,  and  state  all  you  can  regarding  each  of  them. 

15.  Show  all  necessary  entries  in  the  books  of  the  buyer  and  of  the  seller 
under  the  correct  dates: 


No. 

Date. 

Terms. 

Buyer. 

SeUer. 

Amount. 

Remarks. 

When  paid. 

1 

Nov.  3 

2/10,  n/30 

Brown 

Bailey 

$1,200.00 

Nov.  12 

2 

Sept.  16 

Net 

Smith 

Jones 

310.00 

Sept.  24 

3 

Apr.  30 

Cash 

Riley 

Rowe 

54.36 

May  6 

4 

Mch.  5 

1/30,  n/60 

Blaine 

Harrison 

840.00 

$12.00  worth 
retd.  Mar  8 

Apr.  4 

5 

Dec.  31 

2/10,  1/30 
n/60 

Adams 

Jefferson 

916.00 

Jan.  8 

128 


BOOKKEEPING  AND  ACCOUNTING 


16.  L.  C.  Franke  is  the  maker  and  Harold  Luke  is  the  payee  of  each  of 
the  following  notes: 


No. 

Date. 

Face. 

Terms. 

When  reed, 
by  payee. 

When 
Discounted. 

Rate 
of  Di8. 

1 

Sept.  30,  19— 

$1,000.00 

30  days 

Sept.  30,  19— 

Oct.  6,  19— 

6% 

2 

Apr.  16,  19— 

2,400.00 

60  days 

Apr.  17,  19— 

May  4,  19— 

6% 

3 

May  31,  19— 

600.00 

4  mos. 

May  31,  19— 

June  1,  19— 

6% 

4 

Oct.  26,  19— 

3,200.00 

90  days 

Oct.  27,  19— 

Nov.  1,  19— 

6% 

5 

Dec.  6,  19— 

1,850.00 

60  days 

Dec.  6,  19— 

Jan.  4,  19— 

6% 

Make  the  entries  in  the  books  of  both  parties  whenever  entries  are  neces- 
eary. 

Exercise  26B.    Review  Set 

1.  Journalize  the  following  transactions: 
May,  19— 

1  L.  B.  Collins  began  the  flour  and  grain  business  by  investing  cash  $8,500.00, 

office  furniture  $300.00  and  merchandise  as  follows:   1,000  bu.  wheat 
@  $1.00;   850  bbls.  potatoes  @  $2.00,  total  investment,  $11,500.00 
Paid  in  cash:  rent  $75.00;  printing  and  stationery  $18.50;  office  fixtures 
$125.00 

2  Bot.  of  L.  C.  Smith,  2/10,  n/30,  2,000  bu.  corn  @  60c.,  $1,200.00 
Bot.  of  R.  Rogers,  2/10,  n/30,  200  bbls.  flour  @  $7.80,  $1,560.00 

3  Bot.  of  R.  Brown,  on  acct.,  2,000  bu.  wheat  @  $1.00,  $2,000.00 

4  Sold  R.  Thom  &  Bro.,  on  acct.,  1,000  bu.  corn  @  80c.,  $800.00 

Sold  M.  Mullin  &  Son,  on  their  15-day  note,  150  bbls.  flour  @  $10.00, 
$1,500.00 

5  Retd.  to  R.  Rogers,  10  bbls.  flour  @  $7.80,  on  account  of  poor  quality.. 

Received  credit  for  $78.00 

6  Discounted  my  60-da.  note  at  bank.    Face  $5,000.00,  discount   $50.00, 

net  proceeds  $4,950.00 
Paid  in  cash:  clerk  hire  $40.00;  tip  to  janitor  $5.00 
Drew  for  private  use,  cash,  $100.00 
Sold  Brown  &  Robbins,  on  their  10-day  note,  1,000  bu.  wJieat  @  $1.25, 

$1,250.00 
Donated  to  Salvation  Army,  1  bbl.  flour,  $8.00;  to  Sea  Side  Home,  cash 

$5.00.     (Charge  to  Expense  account;    credit  Sales  account  and  Ca^ 

account,  respectively) 

8  Sold  to  Cooper  &  Co.,  2/10,  n/30,  600  bbls.  potatoes  @  $2.25,  $1,350.00 

9  Sold  Thom  &  Bro.,  2/10,  n/30,  1,000  bu.  wheat  @  $1.25,  $1,250.00 
10    Paid  L.  C.  Smith,  cash  in  full  of  invoice  of  5/2,  less  2%,  $1,176.00 


ELEMENTARY  BOOKKEEPING  129 

11  Bot.  of  L.  C.  Smith,  2/10,  n/30,  1,000  bu.  potatoes  @  $1.50,  $1,500.00 

12  Paid  R.  Rogers  on  acct.,  cash,  $1,000.00,  receiving  credit  for  $1,020.00 

(Note  that  this  is  a  part  payment  of  the  May  2d  invoice.  2%  of 
$1,000.00  is  $20.00,  the  credit  to  Discount  on  Purchases  account. 
Mathematically  and  theoretically  we  should  have  received  credit  for 
$1,020.41,  $1,000.00  divided  by  98%) 

13  Gave  R.  Rogers  my  30-day  note  for  balance  of  account  ($462.00) 
Paid  clerk  hire,  cash,  $50.00 

Sent  goods  home  for  private  use,  2  bbls.  flour  @,  $9.00,  $18.00 

15  Gave  R.  Brown  my  15-day  note,  on  account,  $1,000.00 

16  Discounted  MuUins'  note  of  5/4,  proceeds  $1,499.25 

Brown  &  Bobbins  paid  their  note  of  the  6th  inst.,  cash,  $1,250.00 

17  Cooper  &  Co.,  paid  their  invoice  of  5/8,  less  2%,  cash,  $1,323.00 

19  Thom  &  Bro.,  gave  us  their  15-day  note  for  invoice  of  5/4,  less  1%,  $792.00. 

(Charge  Notes  Rec.  account  $792.00,   Dis.   on  Sales  account  $8.00; 
credit  R.  Thom  &  Bro.  $800.00) 

20  Bot.  store  property  for  $6,000.00,  cash.     (Charge  Real  Estate  acct.) 
22    Paid  plumbing  bill,  cash,  $25.00 

26    Paid  R.  Brown  in  full  of  acct.,  cash,  $1,000.00 

30  Paid  my  note  of  5/15,  favor  of  R.  Brown,  cash,  $1,000.00 

31  Paid  in  cash:  clerk  hire  $50.00;  gas  bill  $7.50;  telephone  bill  $12.00 

2.  Post  the  Journal  entries  resulting  from  the  foregoing  transactions. 
Employ  properly  ruled  Ledger  sheets,  and  allow  the  following  number  of 
lines,  exclusive  of  space  required  for  headings: 

Cash  account,  twenty  lines;  Purchase  account  and  Sales  account,  each, 
ten  lines;  Expense,  fifteen  lines;  five  lines  each  for  the  following  accounts: 
Merchandise  Inventory  account,  Furniture  &  Fixtures,  L.  C.  Smith,  R.  Rogers, 
R.  Brown,  R.  Thom  &  Bro.,  Discount,  Discount  on  Sales,  Discount  on  Pur- 
chases, Cooper  &  Co.,  Real  Estate;  eight  lines  each:  Notes  Receivable  account, 
Notes  Payable  account  and  L.  B.  Collins,  Prop's,  account. 

3.  Take  a  Trial  Balance. 

4.  Prepare  a  Statement  of  Profit  and  Loss  and  a  Statement  of  Assets  and 
Liabilities.  The  value  of  the  unsold  merchandise  is  $4,200.00;  unconsumed 
expense  items  are  worth  $10.00;  office  furniture  has  depreciated  10%,  so  that 
it  is  worth  only  $382.50  instead  of  $425.00;  the  real  estate  has  not  changed  in 
value. 

5.  Close  the  books.  Allow  ten  lines  for  Loss  and  Gain  account,  and  three 
lines  each  for  Furniture  &  Fixtures  Inventory  account  and  Expense  Inventoty 
account. 


130  BOOKKEEPING  AND  ACCOUNTING 

Exercise  IC 

Enter  the  following  transactions: 
19— 

Mar.    3  Sold  5  bbls.  peaches  @  S5.00  for  cash 

6  Sold  20  bbls.  apples  @  $4.00  for  cash 

9  Bot.  50  bbls.  apples  @  $3.00  for  cash 

12  Sold  10  bbls  apples  @  $4.50  for  cash 

18  Paid  clerk's  salary  $12.50 

19  Bot.  10  bbls.  peaches  @  $4.00  for  cash 
26  Sold  5  bbls.  peaches  @  $5.00  for  cash 
26  Sold  10  bbls.  apples  @  $4.00  for  cash 

Exercise  2C 

Enter  the  following  transactions: 
19— 

Apr.    2  Bot.  100  bbls.  flour  @  $5.00  for  cash 

7  Sold  10  bbls.  flour  @  $7.00  for  cash 

9  Bot.  10  bbls.  potatoes  @  $5.00  for  cash 

12  Sold  5  bbls.  flour  @  $7.00  for  cash 

19  Sold  5  bbls.  potatoes  @  $6.00  for  cash 

28  Sold  20  bbls.  flour  @  $7.50  for  cash 

30  Bot.  10  bbls.  potatoes  @  $5.00  for  cash 

30  Sold  10  bbls.  flour  @  $7.00  for  cash 

30  Sold  10  bbls.  potatoes  @  $6.50  for  cash 

Exercise  3C 

Enter  the  following  transactions: 
19— 

May    1  Paid  rent  of  store,  cash  $50.00 

3  Paid  for  printing  and  stationery  $25.00 
5  Bot.  150  bbls.  potatoes  @  $5.00  for  cash 
7  Sold  80  bbls.  potatoes  @  $6.00  for  cash 
7  Paid  clerk's  salary,  cash  $15.00 

12  Paid  for  sundry  expenses  cash  $5.00 

12  Sold  80  bbls.  potatoes  @  $6.00  for  cash 

14  Paid  clerk's  salary,  cash  $15.00 

31  Paid  telephone  bill  cash  $10.00 

Exercise  4£ 

Enter  the  following  transactions: 
19— 

June    1    A.  Walsh  began  business  by  investing  cash  $1,000.00 
1    Paid  rent  in  cash  $50.00 

4  Paid  salaries  of  clerks,  cash  $25.00 


ELEMENTARY  BOOKKEEPING  ISl 

6    Bot.  100  bbls.  fruit  for  cash  @  S4.50 
8    Sold  10  bbls.  apples  for  cash  @  $5.00 

11  Paid  salaries  of  clerks^  cash  $25.00 

15  Sold  10  bbls.  peaches  for  cash  @  S6.00 

16  Mr.  Walsh  sent  home,  for  private  use,  fruit  valued  at  $10.00 

18  Paid  salaries  of  clerks,  cash  $25.00 

20    Mr.  Walsh  took  for  private  use,  cash  $25.00 

12  Bot.  10  bbls.  apples  ©  $5.00  for  cash 

Exercise  5C 

Prepare  a  Trial  Balance  of  Totals  of  all  the  Ledger  accounts  resulting 
from  Exercise  4C. 

Exercise  6C 

Enter  the  following  transactions:  , 

19— 
July    1    W.  Wilson  began  business  by  investing  cash  $2,000.00 

1  Paid  rent  in  cash  $125.00 

2  Bot.  100  bbls.  flour  @  $5.00,  for  cash 

5  Sold  10  bbls.  flour  to  J.  Jones,  on  acct.  10  days  $60.00 

6  Paid  clerks  $15.00 

8  Sold  10  bbls.  flour  to  S.  Smith,  on  acct.  10  days  $60.00 
12    Sold  5  bbls.  flour  to  J.  Jones,  on  acct.  10  days  $30.00 

14  Reed,  on  acct.  from  J.  Jones,  $50.00 

17  Sold  10  bbls.  flour  to  A.  Andrews,  on  acct.  10  days  $65.00 

19  Reed,  from  S.  Smith,  cash  $60.00 

22  Sold  R.  Roberts,  10  days  on  acct.  12  bbls.  flour  $60.00 

25  Sold  S.  Smith,  10  days  on  acct.,  5  bbls.  flour  $30.00 

25  Reed,  from  J.  Jones  cash,  in  full  of  acct.,  $40.00 

31  Reed,  from  R.  Roberts,  on  acct.,  $25.00 

Exeicise  7C 

Enter  the  following  transactions: 
19— 

Aug.    1    Thos.  Warner  began  business  investing  $2,500.00  cash 
1    Paid  rent  m  cash  $50.00 

3  Bot.  from  M.  Morris,  on  acct.  10  days,  mdse.  $250.00 
5    Bot.  from  H.  Hansen,  on  acct.  10  days,  mdse.  $500.00 

9  Sold  to  B.  Bums,  on  acct.  10  days,  mdse.  $60.00 

12  Sold  to  J.  O'Connor,  on  acct.  10  days,  mdse.  $50.00 

13  Paid  to  M.  Morris,  on  acct.  $100.00 

15  Paid  to  H.  Hansen,  on  acct.  $100.00 

20  Reed,  on  acct.  from  B.  Bums  $40.00 

30    Reed,  in  full  of  acct.  from  J.  O'Connor  $50.00 
30    Paid  M.  Morris  in  full  of  acct.  $150.00 


132  BOOKKEEPING  AND  ACCOUNTING 

Exercise  8C 

Enter  the  following  transactions  and  prepare  a  Trial  Balance  of  Totds: 
19— 

Sept.    1  Walter  Blaker  began  business,  investing  $1,000.00 

1  Paid  rent  and  expenses  $100.00 

3  Bot.  on  acct.  from  R.  Fielder,  mdse.  $75.00 

6  Sold  to  L.  Levy  mdse.  on  acct.  $125.00 

9  Bot.  on  acct.  from  L.  Strauss,  mdse.  $750.00 

12  Bot.  on  acct.  from  M.  Myers,  mdse.  $60.00 

13  Paid  on  acct.  to  R.  Fielder  $50.00 

15  Sold  on  acct.  to  W.  Benson,  mdse.  $100.00 

18  Sold  on  acct.  to  B.  Perlman,  mdse.  $125.00 

20  Sold  mdse.  for  cash  $25.00 

20  Reed,  on  acct.  from  L.  Levy  $75.00 

22  Paid  for  printing  and  stationery  $10.00 

23  Paid  on  acct.  to  L.  Strauss  $100.00 

23  Bot.  on  acct.  from  L.  Strauss,  mdse.  $50.00 

25  Paid  on  acct.  to  M.  Myers  $40.00 

28  Sold  on  acct.  to  D.  Bandler,  mdse.  $100.00 

28  Paid  L.  Strauss  on  acct.  $50.00 

28  Reed,  from  L.  Levy  in  full  of  acct.  $50.00 

Exetcise  9C 
Journalize  the  transactions  given  in  Exercise  6(7. 

Exercise  IOC 

Post  the  entries  resulting  frbm  journalizing  9C7  and  take  a  Trial  Balance 
of  Totals. 

Exercise  IIC 

Journalize  transactions  of  7C. 
Post  the  resulting  Journal  entries. 

Exercise  12C 

Journalize  and  post  the  following  transactions: 
19— 

Oct.    1  R.  Saks  started  business,  investing  cash  $2,000.00 

2  Paid  cash  for  rent  and  stationery  $100.00 

4  Bot.  of  J.  Aarons,  mdse.  on  acct.  $200.00 

6  Sold  to  A.  Bernstein,  on  15-day  note,  mdse.  $200.00 

7  Sold  to  L.  Cohn,  on  15-day  note,  mdse.  $150.00 

8  Sold  to  L.  Dans,  on  10-day  note,  mdse.  $300.00 

10    Bot.  on  my  20-day  note  from  E.  Edwards,  mdse.  $500.00 


ELEMENTARY  BOOKKEEPING  133 

13  Bot.  on  my  1-mo.  note  from  F.  Frantz,  mdse.  $200.00 

14  Sold  to  G.  Goodson  on  his  10-day  note,  mdse.  $100.00 
18    Reed,  cash  from  L.  Dans  for  10-day  note  $300.00 

18  Sold  for  cash  to  H.  Hart,  mdse.  $50.00 

20  R.  Saks  drew  for  personal  use  $150.00 

20  R.  Saks  took  mdse.  home  for  personal  use  $25.00 

21  Reed,  cash  from  A.  Bernstein  for  15-day  note  $200.00 
21  Reed,  cash  from  L.  Cohn  for  15-day  note  $150.00 

25    Paid  on  acct.  to  J.  Aarons  $100.00 

25    Reed,  cash  from  G.  Goodson  for  his  note  $100.00 

28    Sold  to  A.  Bernstein  on  his  15-day  note  $500.00 

30    Sold  to  L.  Cohn  on  his  15-day  note,  mdse.  for  $250.00 

30    Paid  clerk  hire  $50.00 

Paid  expense  bills  $35.00 

Paid  my  20-day  note  to  E.  Edwards  $500.00 

Exercise  13C 

Journalize  and  post  the  following  transactions: 
19— 

Nov.    1    L.  Heinrich  began  business  and  invested  cash  $2,000.00,  and  mdse. 
$600.00 

1  Paid  rent  and  expenses  $200.00 

2  Bot.  on  acct.  from  S.  Silver,  mdse.  $500.00 

3  Sold  on  acct.  to  D.  Eichler,  mdse.  $100.00 

6  Gave  S.  Silver  my  10-day  note  on  acct.  $200.00 

8  Reed,  on  acct.  from  D.  Eichler,  his  10-day  note,  $50.00 

10  Paid  clerk's  salaries  $60.00 

11  Sold  to  D.  Eichler,  mdse.  $300.00 

16  Reed,  from  D.  Eichler,  balance  of  inv.  11/3,  $50.00 

16  Paid  my  10-day  note  to  S.  Silver  $200.00 

18  Reed,  from  D.  Eichler  for  his  10-day  note,  $50.00 

20  Bot.  on  my  15-day  note  from  B.  Anthony,  mdse.  $250.00 

22  Bot.  on  my  10-day  note  from  J.  Ferber,  mdse.  $300.00 

25  Sold  to  L.  Schack,  on  10-day  note,  mdse.  $200.00 

25  Paid  clerk's  salaries  $60.00 

28  Paid  on  acct.  to  S.  Silver,  $200.00 

30  Sold  for  cash,  mdse.  $50.00 

Exercise  14C 
Prepare  a  Trial  Balance  from  Exercise  12(7. 

Exercise  16C 
Prepare  a  Profit  and  Loss  Statement  for  Mr.  R.  Saks,  Exercise  12C. 


134  BOOKKEEPING  AND  ACCOUNTING 

Exercise  16C 
Prepare  a  Statement  of  Assets  and  Liabilities  for  Mr.  R.  Saks,  Exercise  12C. 

Exercise  17C 

Journalize  the  following  transactions: 
19— 

Nov.    1  E.  England  began  business,  investing  cash  $5,000.00 

1  Paid  rent  $100.00 

3  Bot.  of  S.  Stein,  2/10,  n/30,  mdse.  $600.00 

5  Bot.  of  0.  Osterman,  2/10,  n/30,  mdse.  $500.00 

7  Sold  M.  Messing,  2/10,  n/30,  mdse.  $300.00 

8  Sold  Harold  Jones,  2/10,  n/30,  mdse.  $900.00 
10  Bot.  of  G.  Jacobs,  2/10,  n/30,  mdse.  $500.00 

10    Paid  S.  Stein  on  acct.  (p.  discount  $8.00),  $392.00 

12    Bot.  of  G.  Gold,  2/10,  n/30,  mdse.  $300.00 

15    Paid  0.  Osterman  in  full  of  invoice  (less  2%),  $490.00 

18    Reed,  cash  on  acct.  from  M.  Messing,  $150.00 

20    Sold  to  E.  Engle,  2/10,  n/30,  mdse.  $100.00 

22    Reed,  on  acct.  from  H.  Jones,  $500.00 

Paid  on  acct.  :>;o  G.  Jacobs,  $250.00 

Paid  on  acct.  to  G.  Gold,  $200.00 
25    Reed,  cash  in  full  of  acct.  from  M.  Messing  (less  2%  of  $150.00), 

$147.00 
30    Reed,  cash  in  full  of  acct.  from  E.  Engle,  less  2%,  $98.00 

Exercise  18C 

Journalize  the  following  transactions: 
19— 
Dee.    1     Frank  Condon  began  busmess,  investing  cash  $3,000.00 

1  Paid  rent  $100.00 

2  Bot.  of  H.  Williams  2/10,  n/30,  mdse.  $500.00 

2  Bot.  of  W.  Duggan,  2/10,  n/30,  mdse.  $500.00 

3  Sold  to  A.  Besser,  2/10,  n/30,  mdse.  $300.00 

6    Sold  to  B.  Greenwald,  2/10,  n/30,  mdse.  $600.00 
9    Sold  to  Al.  Meyers,  2/10,  n/30,  mdse.  $400.00 
12    Paid  on  acct.  to  H.  WilUams  (less  2%)  $245.00 

Paid  on  acct.  to  W.  Duggan  (less  2%),  $245.00 

Mr.  Condon  drew  for  personal  use  $100.00 

14  Reed,  cash  on  acct.  from  A.  Besser  (less  2%),  $196.00 

15  Paid  salaries  |60.00 

15  Reed,  cash  in  full  of  acct.  from  B.  Greenwald  (less  2%),  $588.00 

16  Reed,  cash  in  full  of  acct.  from  Al.  Meyers  (less  2%),  $392.00 


ELEMENTARY  BOOKKEEPING  135 

Exercise  19C 

Jonmalize  the  following  transactions: 
19— 

Jan.    2    John  Jones  began  business,  investing  cash  $5,000.00 
Paid  rent  $100.00 

4  Bot.  of  F.  Masterson,  2/10,  n/30,  mdse.  $500.00 
Sold  M.  Matthews,  2/10,  n/30,  mdse.  $300.00 

6  Sold  for  cash,  mdse.  $50.00 

8    Bot.  on  acct.  2/10,  n/30  of  Mr.  RolUns,  mdse.  $1,000.00 
10    Paid  expense  bills,  $100.00 

12  Sold  to  M.  Army,  on  acct.,  mdse.  $200.00 

14  Reed,  from  M.  Armj^ ,  his  10-day  note  for  $200.00 ' 

15  Discounted  at  bank  M.  Army's  note.    Reed,  proceeds 
Paid  F.  Masterson  in  full  of  inv.,  deducting  discount 

16  Reed,  of  M.  Matthews  cash  for  |  invoice  of  1/4  (less  2%) 
Borrowed  on  my  60-day  note  from  the  bank,  at  5%,  $1,000.00 

Exercise  20C 

Journalize  the  following  transactions: 
19— 

Feb.    1    Student  began  business  by  investing  cash  $5,000.00,  and  mdse. 
$2,400.00 
Paid  rent,  $250.00 

Bought  from  H.  Harvey,  on  a/c,  2/10  n/30,  mdse.  $1,000.00 
3    Sold  J.  Smith,  on  a/c,  2/10,  n/30,  mdse.  $500.00 

5  Bot.  on  my  10-day  note  from  H.  Strauss,  mdse.  $1,000.00 

7  Sold  on  a/c,  2/10,  n/30,  to  Wilson  &  Co.,  mdse.  $500.00 
Paid  salaries  and  expenses  $65.00 

10  Discounted  at  bank,  my  3-months  note,  at  5%,  $2,000.00 

11  Paid  I  of  inv.  of  H.  Harvey,  2/1  Gess  2%),  $490.00 

13  Gave  H.  Harvey  my  2-months'  note  for  balance  due 
Reed,  from  Smith,  his  30-day  note  in  full  $500.00 

14  Discounted  Smith's  note  at  bank,  at  5% 

15  Paid  my  note  to  H.  Strauss,  $1,000.00 

Sold  my  2-months'  note  to  broker,  at  5%,  $3,000.00 

Bot.  of  R.  Roberts,  mdse.  $1,000.00.    Paid  cash  for  ^  of  inv.  $500.00. 

Gave  30-day  note  for  $250.00,  and  balance  on  acct.,  $250.00 

17  Reed,  from  Wilson  &  Co.  on  acct.  $245.00  to  cancel  ^  of  mv.  of  2/7 

Exercise  21C 

Journalize  the  following  transactions: 
19— 

Sept.  1    Walter  Blaker  began  business  investing  $1,000.00 
1     Paid  rent  and  expenses  $100.00 


136  BOOKKEEPING  AND  ACCOUNTING 

Sept.  3    Bot.  on  acct.  from  R.  Fielder,  mdse.  $75.00 

5  Retd.  to  R.  Fielder,  mdse.  $10.00 

6  Sold  to  L.  Levy  mdse  on  acct.  $125.00 

9    Bot.  on  acct.  from  L.  Strauss,  mdse.  $750.00 

12  Bot.  on  acct.  from  M.  Myers,  mdse.  $60.00 

13  Paid  on  acct.  to  R.  Fielder  $50.00 

15  Sold  on  acct.  to  W.  Benson,  mdse.  $100.00 
18  Sold  on  acct.  to  B.  Perlman,  mdse.  $125.00 
20    Sold  mdse.  for  cash,  $25.00 

Reed,  on  acct.  from  L.  Levy  $75.00 

22  Paid  for  printing  and  stationery  $10.00 
Paid  on  acct.  to  L.  Strauss  $100.00 

23  Bot.  on  acct.  from  L.  Strauss,  mdse.  $50.00 

25  Paid  on  acct.  to  M.  Myers  $40.00 

26  Retd.  to  L.  Strauss,  mdse.  $20.00 
W.  Benson,  retd.  to  us  mdse.  $25.00 
B.  Perlman,  retd.  to  us  mdse.  $5.00 
Allow  to  B.  Perlman,  damage  $5.00 

28    Sold  on  acct.  to  D.  Bandler,  mdse.  $100.00 
Paid  L.  Strauss  on  acct.  $50.00. 
Reed,  from  L.  Levy  in  full  of  acct.  $50.00 

Exercise  22C  . 

Journalize  Exercise  21C,  employing  Merchandise  Purchases  and  Merchandise 
Sales  Accounts. 

Post  and  take  a  Trial  Balance. 

Exercise  23C 

Prepare  a  Profit  and  Loss  Statement  and  a  Statement  of  Assets  and  Lia- 
bilities for  Exercise  22C  The  merchandise  on  hand  is  worth  $600.00  and 
the  value  of  the  unconsumed  expense  items  is  $25.00. 

Exercise  24C 
Close  the  books  used  to  write  up  the  transactions  of  Exercise  22C. 

Exercise  25C.    (Not  assigned.) 

Exercise  26C.    Review  Set 
19— 

Mar.  1    A.  Fairview  began  business  investing  the  following:  Cash  $8,000.00, 

mdse.  $3,000.00,  office  furniture  $1,000.00 

Paid  rent  for  month  $100.00 

2  Paid  stationery  and  printing  bills  $65.00 

3  Bot.  of  R.  Kennedy,  2/10,  n/30,  mdse.  $900.00 
Gave  R.  Kennedy  my  60-day  note  on  acct.  $400.00 


ELEMENTARY  BOOKKEEPING  187 

Mar.  4    Sold  John  Adams,  2/10,  n/30,  mdse.  $1,000.00 

Reed,  cash  for  |  of  invoice  Qess  2%),  and  a  30-day  note  for  the 
balance 
6    Sold  mdse.  for  cash,  $75.00 

Paid  salaries  to  date,  $125.00 
8    A.  Fairview  took  home  mdse.  for  personal  use  $35.00 
He  also  drew  for  personal  use,  $150.00  in  cash 

10  Sold  Thomas  Martin,  on  his  2-months'  note,  mdse.  $600.00 
Donated  to  hospital,  mdse.  $15.00 

Bot.  office  furniture  for  $50.00 

11  Bot.  of  Arthur  Sims,  2/10,  n/30,  mdse.  $750.00 

12  Retd.  to  R.  Kennedy,  $25.00  worth  of  mdse.  on  acct.  of  damaged 

condition,  and  received  credit  for  same 

13  Paid  salaries  to  date  $125.00 

15  Discounted  Thomas  Martin's  note  at  Hank,  at  6% 

16  Sold  Franklin  Bros.,  2/10,  n/30,  mdse.  $1,000.00 

17  Bot.  of  William  Wright,  2/10,  n/30,  mdse.  $800.00 

18  Paid  R.  Kennedy,  $300.00  on  acct.  of  mv.  of  3/3 
20  Paid  salaries  to  date,  $125.00 

Paid  expense  bills  $25.00 

22  Paid  Wm.  Wright  in  full  for  inv.  of  3/17  Gess  2%) 

23  Franklin  Bros.  retd.  to  us  merchandise  amounting  to  $20.00,  on 

acct.  of  damage 

24  Franklin  Bros,  paid  in  full  for  inv.  of  3/16  (less  2%)  $960.40 
Cash  sales  of  mdse.  $50.00 

27    Paid  salaries  to  date  $125.00 

29  Bot.  property  for  a  factory  $5,000.00.   (Open  an  account  with  Real 

Estate) 

30  Sold  Franklin  Bros.,  2/10,  n/30,  mdse.  $500.00 

31  Franklin  Bros,  sent  us  their  30-day  note  for  inv.  of  3/30 
Paid  collection  and  exchange  at  bank  for  month  $1.15 

1.  JoumaUze  the  foregoing  transactions. 

2.  Post  the  entries. 

3.  Take  a  Trial  Balance. 

4.  Prepare  a  Profit  and  Loss  Statement,  and  a  Statement  of  Assets  and 
Liabilities.  Mdse.  Inventory  $4,000.00,  unconsumed  expense  items,  including 
stationery,  $50.00;  office  furniture  has  depreciated  10%. 

5.  Close  the  books. 

Exercise  2D 
Enter  the  following  transactions: 
Jan.    2    Bot.  for  cash  100  bu.  beans  @  $2  per  bu. 
3    Sold  for  cash  10  bu.  beans  @  $2.20  per  bu. 


138  BOOKKEEPING  AND  ACCOUNTING 

Jan.   4    Bot.  for  cash  from  Thomas  Cox,  100  bu.  wheat  @  $1  per  bu. 

5  Sold  for  cash  5  bu.  wheat  @  $1.20  per  bu. 

6  Bot.  from  James  Winston  for  cash  50  bu.  beans  @  $2  per  bu. 

8  Reed,  from  John  Thomas  a  check  for  $24,  payment  for  10  bu.  beans 

9  Gave  Thomas  Davids  a  check  for  $50,  payment  for  50  bu.  wheat 

10  Sold  Charles  WilUams  20  bu.  wheat  @  $1.20  per  bu.    Reed,  check 
for  amount  of  bill 

11  Bot.  from  James  Winston  for  cash  200  bu.  rye  @  $.50  a  bu. 

12  Sold  Martin  Ryan  for  cash  20  bu.  rye  @  $.60  a  bu. 

13  Reed,  cash  for  10  bu.  rye  @  $.60  a  bu. 

14  Paid  cash  for  50  bu.  oats  @  $.40  per  bu. 

Exercise  3D 

Enter  the  following  transactions: 
Feb.    1    Bot.  mdse.  for  cash  $300 
Paid  rent  of  store  $150 

2  Bot.  coal  for  use  in  store  $50 

Paid  $10  for  stationery  for  office  use 

3  Cash  Sales  today  amounted  to  $25 
Paid  $15  for  postage  stamps 

Paid  $25  for  repairmg  store  and  fixtures 

4  Cash  sales  $50 

Paid  advertising  bill  with  mdse.  $10 

5  Cash  Sales  $65 
Donated  $20  to  charity 

6  Cash  Sales  $75 
Paid  clerk  hire  $25 

8  Cash  Sales  $100 

Paid  for  cleaning  store  $3 
Bot.  mdse.  for  cash  $50 

9  Paid  freight  bills  $20 
Paid  plumbing  bill  $15 
Cash  Sales  $80 

10  Cash  Sales  $70 

Gave  a  check  for  $50  in  payment  for  a  bill  of  mdse 

11  Cash  Sales  $50 
Paid  gas  bill  $8 

13    Cash  Sales  $300 

Paid  telephone  bill  $10 
Paid  clerk's  salary  $25 
Paid  bookkeeper  $12 


ELEMENTARY  BOOKKEEPING  139 

Exercise  4D 
Enter  the  following  transactions: 
Mar.    1    Joseph  Fay  began  the  flour  and  grain  business,  investing  cash  $8,000 

2  Bot.  from  William  Dempsey  for  cash,  100  bbl.  flour  @  $5  per  bbl. 
Bot.  from  Frank  Carter  200  bu.  wheat  @  $1  per  bu. 

Paid  rent  of  store  $150 

3  Cash  sales  today  amounted  to  $25 
Proprietor  took  2  bbl.  flour  for  private  use  $10 

4  Cash  Sales  $50 

Paid  for  repairs  to  store  $10 

5  Gave  Alexander  Lord  a  check  for  200  bu.  oats  @  $.40  per  bu. 
Cash  Sales  $60 

6  Paid  Clerk  hire  $12 
Cash  Sales  $100 

Proprietor  withdrew  for  private  use  $30 

8  Bot.  from  Henry  Miller  for  cash  100  bu.  beans  @  $2  per  bu. 
Cash  Sales  $90 

Paid  for  advertising  $15 

9  Cash  Sales  $125 

10  Proprietor  made  an  additional  investment  of  $2,000 
Cash  Sales  $100 

11  Bot.  from  Jacob  Frank  for  cash  100  bbl.  flour  @  $5 
Cash  Sales  $70 

12  Cash  Sales  $150 

Donated  5  bbl.  flour,  $25,  to  a  Church  Fair 

13  Cash  Sales  $125 
Paid  clerk  hire  $12 
Paid  bookkeeper  $12 

Proprietor  withdrew  for  private  use  $30 

Exercise  6D 

Prepare  a  Trial  Balance  of  Totals  of  all  Ledger  accounts  resulting  from 
Exercise  4D. 

Exercise  6D 

Enter  the  following  transactions: 

May   1    Joseph  Brown  begins  the  coal  and  wood  business,  investing  cash 
$8,000 

2  Bot.  of  Lehigh  Coal  Co.  for  cash  150  tons  of  coal  @  $5 

Bot.  of  Erie  Lumber  Co.  100  loads  of  wood  @  $2.50.    Paid  cash 

3  Paid  rent  for  office  and  yard,  cash  $75 

4  Sold  to  James  Wilson  for  cash  10  tons  of  coal  @  $6.75 

5  Sold  to  Henry  Austin  on  a/c  15  loads  of  wood  @  $3.50 

6  Paid  the  yardmen  week's  wages,  cash  $30 


140  BOOKKEEPING  AND  ACCOUNTING 

Mar.  6    Paid  derk,  cash  $12 

8  Reed,  of  Henry  Austin  cash  on  a/c  $25 

9  Sold  Black  &  White  on  a/c  20  tons  of  coal  @  $6.25 

10  Sold  to  James  Wilson  on  a/c  60  tons  of  coal  @  $6.50 

11  Sold  Henry  Austin  on  a/c  50  loads  of  wood  @  $3.25 
Reed,  of  Henry  Austin  cash  on  a/c  $27.50 

12  Bot.  of  Erie  Lumber  Co.  for  cash  50  loads  of  wood  @  $2.50 

13  Reed,  of  James  Wilson  in  full  of  a/c  $325 
Paid  week's  wages  to  yardmen,  cash  $30 
Paid  clerk  $12  in  cash 

15  Reed,  of  Black  &  White,  on  a/c,  $60  in  cash 

16  Reed,  of  Henry  Austin  on  a/c  $100  in  cash 

17  Paid  for  stamps  and  stationery  $5  in  cash 

Exercise  7D 

Enter  the  following  transactions: 

June    1    Frank  Curtis  began  the  carpet  business,  investing  cash  $10,000 

2  Bot.  of  Daniel  Gray  on  acet.  500  yd.  Brussels  carpet  @  $1  a  yd. 

3  Bot.  of  James  Christy  on  acet.  25  rugs  @  $20 

4  Paid  rent  of  store  $100 

5  Bot.  of  William  Myers  on  a/c  100  yd.  linoleum  @  $.60 

6  Sold  for  cash  to  John  Mayo  5  rugs  @  $25 
Paid  clerk's  salary,  $15 

8  Paid  Daniel  Gray  $250  on  a/c 

9  Sold  to  George  Devlin  for  cash,  50  yd.  Brussels  carpet  @  $1.20 

10  Paid  James  Christy  $200  on  aect. 

11  Bot.  from  John  Winter  500  yd.  matting    @    $.25.    Paid    him    $75. 

Balance  on  acet. 

12  Paid  Daniel  Gray  balance  of  bill  of  2nd 

13  Sold  William  Green  for  cash  10  yd.  linoleum  @  $.80 
Paid  clerk's  salary,  $15 

Proprietor  withdrew  for  private  use  $25 

15  Paid  James  Christy  balance  of  bill  of  3d 

16  Paid  WiUiam  Myers  for  his  bill  of  5th 

17  Sold  for  cash  to  James  Todd  25  yd.  matting  @  $.25 

18  Paid  John  Winter  balance  of  acet.  of  Uth 

19  Bot.  from  Straus  &  Co.  on  acet.  1,000  yd.  of  lining  @  $.08 

20  Sold  Henry  Cunning  for  cash  3  rugs  @  $25 
Paid  Straus  &  Co.'s  bill  of  19th 

Paid  clerk's  salary,  $15 


ELEMENTARY  BOOKKEEPING  141 

Exercise  8D 
Enter  the  following  transactions  and  prepare  a  Trial  Balance  of  Totals: 
Aug.    1     David  Foster  began  the  ribbon  and  lace  business  with  cash  $10,000 

2  Paid  rent  of  loft  $150 

3  Bot.  of  James  Cooper  on  acct.    500  yd.  No.  2  ribbon  @  lOc,  and 

600  yd.  No.  5  lace  @  12c. 

4  Bot.  of  Thomas  Blake  1,000  yd.  No.  4  ribbon  @  20c.    Paid  cash 

$100,  balance  on  acct. 

5  Sold  Herman  Singer  on  acct.  100  yd.  No.  2  ribbon  @  15c. 

6  Paid  clerks'  salaries,  $25 

8  Bot.  of  Frank  Cusack  on  acct.  450  yd.  No.  9  lace  @  30c. 

9  Paid  James  Cooper  for  bill  of  3d  in  cash 

10  Bot.  of  John  Mullin  on  acct.  800  yd.  No.  6  ribbon  @  15c. 

11  Sold  Abraham  Conklin  on  acct.  100  yd.  No.  5  lace  @  15c. 

12  Proprietor  withdrew  for  private  use  $50 

13  Paid  clerks'  salaries,  $25 

15  Paid  for  store  fixtures  $50 

16  Bot.  of  James  Cooper  1,200  yd.  No.  10  ribbon  @  18c.    Paid  cash  $75, 

balance  on  acct. 

17  Paid  balance  of  bill  of  4th 

18  Sold  Henry  Davis  on  acct.  200  yd.  No.  10  ribbon  @  25c. 

19  Reed,  cash  from  Herman  Singer  for  bill  of  5th 

20  Paid  clerks'  salaries,  $25 

22  Gave  Frank  Cusack  $75,  part  pajonent  of  bill  of  8th 

23  Bot.  of  Thomas  Little  on  a/c  600  yd.  No.  3  lace  @  10c. 

24  Reed,  from  Abraham  Conklin  $15  in  cash  pajrment  for  bill  of  11th 

25  Bot.  500  2-cent  postage  stamps 

26  Sold  to  James  O'Neill  on  acct.  300  yd.  No.  10  ribbon  @  25c.    Reed. 

$25  in  cash,  balance  on  acct. 

27  Paid  clerks'  salaries,  $25 

29  Paid  John  Mullin  $50  on  acct.  of  bill  of  10th 

30  Paid  James  Cooper  balance  of  bill  of  16th 

31  Reed,  from  Henry  Davis  $50  cash,  payment  of  bill  of  18th 

Exercise  9D 
Journalize  transactions  given  in  Exercise  6D. 

Exercise  lOD 

Post  the  entries  resulting  from  journalizing  Exercise  92),  and  take  a  Trial 
Balance  of  Totals. 

Exercise  IID 
Journalize  transactions  of  Exercise  7D  and  post  the  resulting  Journal  entries. 


142  BOOKKEEPING  AND  ACCOUNTING 

Exercise  12D 

Journalize  and  post  the  following  transactions: 
Mar.    1    James  Madden  began  business  with  $2,000  cash  and  $1,500  mdse. 

2  Bot.  a  bill  of  mdse.  amounting  to  $800  on  his  10-day  note. 

3  Sold  mdse.  to  David  Sands  on  his  30-day  note  $150 

4  Paid  rent  of  store  $100 

5  Bot.  bill  of  mdse.  from  John  Kelly  $500.    Paid  $200.    Gave  him  a 

10-day  note  for  the  balance 

6  Paid  clerk's  salary,  $15 

8  Sold  mdse.  to  Benjamin  Adams  $200.    He  paid  cash  $75  and  gave 

a  10-day  note  for  the  balance. 

9  Bot.  mdse.  from  Frank  Fisk  on  acct.  $1,000 

10  Sold  mdse  to  John  Phillips  $250  on  acct. 

11  Sold  mdse.  to  Charles  Carpenter  $90  on  acct. 

12  Paid  my  note  of  the  2nd  in  cash 

13  Paid  clerk's  salary  in  cash,  $15 

15  Paid  my  note  of  the  5th  in  cash 

16  Sold  mdse.  to  Thomas  Grant  $500.    Reed,  cash  $200  and  a  6-day 

note  for  the  balance 

17  Proprietor  withdrew  mdse.  for  private  use  $20 

18  Reed,  from  Benjamin  Adams  payment  on  the  note 

19  Gave  a  30-day  note  to  Frank  Fisk  in  payment  of  bill  of  9th 

20  Reed.  15-day  note  from  John  Phillips  in  payment  of  bill  of  10th 
Paid  clerk's  salary,  $15 

22  Reed,  cash  from  Charles  Carpenter  in  payment  of  bill  of  11th 

23  Reed,  cash  from  Thomas  Grant  in  payment  of  note  of  16th 


Exercise  13D 

Journalize  and  post  the  following  transactions: 

Nov.    1    Richard  Stone  began  the  furniture  business  at  No.  150  Broadway, 
investing  cash,  $5,000.00  and  mdse.  inventoried  at  $4,000.00 


2 

Paid  rent  of  store  $100.00 

3 

Bot.  of  James  Townsend  on  acct. : 

10  Library  Tables 

@  $20.00 

15  Dining  Tables 

@    16.00 

4 

Sold  John  Lane  on  acct. : 

1  Writing  Desk 

$30.00 

1  Bookcase 

25.00 

1  Filing  Cabinet 

15.00 

5    Paid  James  Townsend  $100.00  on  acct. 


ELEMENTARY  BOOKKEEPING  143 

Nov.    6    Sold  George  Lindsay  on  acct. : 

1  Couch  $40.00 

1  Oak  HaU  Stand  25.00 

1  Dining  Table  20.00 

6  Dining  Chairs  18.00 

Reed.  $25.00  from  John  Lane  on  acct. 
Paid  clerk's  salary,  $15.00 

8  Reed,  from  John  Lane  his  10-day  note  for  balance  of  bill  of  4th 

9  Sold  Martin  Kane:  $40.00  cash,  balance  on  acct.: 

1  Music  Cabinet  $15.00 

1  Library  Table  25.00 

6  Library  Chairs  30.00 

10  Gave  James  Townsend  my  15-day  note  for  balance  of  bill  of  3d 

11  Proprietor  withdrew  $50.00  for  private  use. 

Sold  George  Hall  for  cash: 

1  Complete  Dining  Room  Set         $75 .  00 

12  Reed,  from  Martin  Kane,  his  30-day  note  for  balance  of  bill  of  9th 
Proprietor  made  an  additional  investment:  Cash  $1,000.00 

13  Paid  clerk's  salary,  $15.00 
Paid  for  cleaning  store  $3.00 
Paid  for  coal  $25.00 

Sold  John  Thomas  on  his  10-day  note: 

2  Office  Chairs        @  $12.50 
1  Office  Desk  25.00 

15  Bot.  from  James  Townsend,  on  my  30-day  note: 

5  Oak  Sideboards    @  $50.00 

6  Cedar  Chests       @     10.00 

16  Sold  to  William  Black  for  cash: 

1  Brass  Bedstead  $30.00 

1  Mattress  15.00 

1  Wardrobe  20.00 

Sold  Thomas  Jones  on  his  10-day  note: 

1  Con^plete  Dining  Room  Set  $75.00 

17  Sold  Nathan  Levy: 

1  Parlor  Lamp  $12.00 

1  Brass  Bedstead  30.00 

1  Mattress  15.00 

1  Dressing  Table  30.00 

Reed.  $50.00  in  cash;  balance  on  acct. 

18  Reed,  cash  $45.00  from  John  Lane  in  payment  of  his  note  of  8th 


144  BOOKKEEPING  AND  ACCOUNTING 

Nov.  18    Bot.  from  Morris  &  Co.  on  my  10-day  note: 

19 


10  Hall  Settles 

@  $14.00 

25  Fancy  Rockers 

@      8.00 

Sold  Thomas  Lund  for  cash: 

1  Bookcase 

$25.00 

1  Library  Table 

25.00 

Reed,  from  George  Lindsay,  $50.00  in  cash  and  his  10-day  note  for 
balance  of  bill  of  6th 
20    Sold  Christopher  Carr  on  his  10-day  note: 
1  Brass  Bedstead  $30.00 

1  Mattress  15.00 

Paid  clerk's  salary,  $15.00 
Paid  for  postage  stamps  $3.00 

22  Bot.  from  Morris  &  Co. :  . 

15  Mirrors  @>  $20.00 

10  Parlor  Lamps  @      8.00 

Paid  $100.00  in  cash,  balance  on  acct. 

23  Sold  James  Albert  for  cash: 

1  Mirror  $25.00 

1  Parlor  Lamp  10.00 

John  Thomas  paid  his  note  of  13th  in  cash  $50.00 

24  Sold  Henry  Hess: 

2  Mirrors  @  $25.00 
1  Lamp  10.00 
1  Writing  Desk                     15.00 

Reed,  cash  $30.00;  balance  on  acct. 

25  Paid  note  due  James  Townsend  today  $340.00 

26  Sold  John  Mills  for  cash: 

6  Dining  Chairs  @  $  4.00 

1  Dining  Table  20.00 

Thomas  Jones  paid  his  note  of  16th  in  cash  $75.00 

27  Paid  clerk's  salary  $15.00 

Proprietor  withdrew  for  private  use  $50.00 

29  Paid  Morris  &  Co.  note  of  18th  in  cash  $340.00 
George  Lindsay  paid  his  note  of  19th  due  today  $53.00 

30  Bot.  of  William  Johnson 

20  White  Iron  Bedsteads  @  $5.50 
Paid  $75.00  cash,  balance  on  acct. 
Christopher  Carr  paid  his  note  of  20th  due  today  $45.00 

Exercise  14D 
Prepare  a  Trial  Balance  from  Exercise  12D, 


ELEMENTARY  BOOKKEEPING  145 

Exercise  16D 

Prepare  a  Profit  and  Loss  Statement  for  Mr.  Madden,  mdse.  inv.  13,000.00. 
Exercise  12D. 

Exercise  16D 
Prepare  a  Statement  of  Assets  and  Liabilities  for  Mr.  Madden,  Exercise  122). 

Exercise  17D 

Journalize  the  following  transactions: 
Feb.  1    Wm.  A.  Moore  began  business,  investing  cash  $1,800.00  and  mdse. 
as  follows:   1,000  bu.  barley  @  $.75,  100  bu.  oats  @  $.35 
2    Paid  E.  Burke  cash  for  rent  of  store  $35.00 
4    Bot.  of  Henry  Elk  2/10,  n/30,  500  bu.  rye  @  $.60 

6  Sold  John  Smith  for  cash  100  bu.  barley  @  $1 .00  and  100  bu.  oats  @  $.50 

7  Paid  $5.00  for  repairs  in  store 

8  Paid  Henry  Elk  cash  for  invoice  of  4th  inst.,  less  2% 

9  Bot.  of  J.  Hastings  2/10,  n/30,  1,000  bu.  oats  @  $.35,  1,000  bu.  barley 

@$.75 
10    Sold  M.  Green  on  acct.  1500  bu.  barley  @  $1.10 
12    Bot.  of  Geo.  Daniels  2/10,  n/30,  300  bu.  clover  seed  @  $4.00 
14    Paid  J.  Hastings  cash  for  invoice  of  9th  inst.,  less  2% 
16    Bot.  of  W.  Hayes  2/10,  n/10,  500  bu.  rye  @  $.60 
Sold  Frank  Walsh  for  cash  1,000  bu.  rye  @  $.75 

18  Bot.  of  J.  Hastings  2/10,  n/30,  200  bu.  rye  @  $.60 

19  Paid  Geo.  Daniels  for  invoice  of  12th  inst.,  less  2% 

20  Bot.  of  Henry  Elk  2/10,  n/30,  400  bu.  rye  @  $.60 

21  Wm.  A.  Moore  withdrew  cash  for  personal  use  $25.00 

23  Paid  J.  Hastings  cash  for  invoice  of  18th  inst.,  less  2% 

24  Sold  John  J.  Smith  for  cash  400  bu.  barley  @  $1.00  and  200  bu.  clover 

seed  @  $5.00 

25  Paid  W.  Hayes  cash  for  invoice  of  16th  inst.,  less  2% 
28    Paid  sundry  expenses  $86.00 

Exercise  18D 

Journalize  the  following  transactions: 
Jan.    2    Student  began  business  this  day,  investing  cash  $8,500.00 
2    Paid  rent  of  store  $50.00 

2    Bot.  of  R.  Hopkins  for  cash,  3,000  bu.  com  @  $.50,  2,000  bu.  wheat 
@  $1.00,  400  bbls.  flour  @  $6.00 

2  Sold  Emerson  Bros.  2/10,  n/30,  2,000  bu.  com  @  $.60 

3  Sold  J.  Young  2/10,  n/30,  200  bbls.  flour  @  $7.80 

5  Reed,  cash  from  Emerson  Bros,  for  invoice  of  2nd  inst.,  less  discount 

6  Sold  C.  Fuller  2/10,  n/30,  2,000  bu.  wheat  @  $1.10 


146  BOOKKEEPING  AND  ACCOUNTING 

Jan.    8    J.  Young  paid  invoice  of  3rd  inst.,  less  2%  cash,  $1,528.80 

10    C.  Fuller  paid  us  cash  on  acct.  $980.00,  reed,  credit  for  $1,000.00 

12  Sold  M.  Mullin  2/10,  n/30,  150  bbls.  flour  @  $10.00,  1,000  bu.  com 

@$.80 

13  Bot.  of  R.  Hopkins  on  acct.  4,000  bu.  corn  @  $.50,  2,000  bu  wheat 

@  $1.00  and  500  bbls.  flour  @  $6.00 

15  Sold  Emerson  Bros.  2/10,  n/30,  1,000  bu.  corn  @  $.60,  600  bu.  wheat 

@  $2.00 

16  M.  Mullin  settled  for  invoice  of  12th  inst. 

17  Sold  S.  Green  2/10,  n/30,  1,000  bu.  corn  @  $.75,  100  bu.  wheat 

@  $2.00 

18  Sold  E.  Carpenter  2/10,  n/30,  1,000  bu.  wheat  @  $2.10 

19  Reed,  cash  of  Emerson  Bros,  for  invoice  of  15th  inst.,  less  discount. 

20  Sold  C.  Fuller  2/10,  n/30,  100  bu.  wheat  @  $2.00  and  200  bbls. 

flour  @  $8.00 
22    Reed,  cash  of  E.  Carpenter  for  invoice  of  18th  inst. 
26    C.  Fuller  paid  invoice  of  the  20th  inst.,  less  2%  $1,764.00 
30    Paid  sundry  expenses  $114.00 

Exercise  19D 

Journahze  the  following  transactions: 

May     1    Charles  Duffy  began  the  Grocery  Business  this  day  with  cash  $2,000.00 
and  mdse.  $1,000.00 

2  Bot.  from  Daniels  &  Co.,  50  crates  of  eggs,  1,500  doz.  @  20c.    Gave 

him  $100.00  and  a  note  at  30  days  for  balance 

3  Bot.  from  William  Beck,  50  bbls.  flour  @  $5.00.     Gave  him  my  10-day 

note  in  payment 

4  Sold  Alexander  Blum  on  his  10-day  note  10  bbls.  flour  @  $6.00 

5  Sold  Jacob  Claus  on  his  30-day  note  5  crates  of  eggs,  150  doz.  @ 

25c. 

6  Bot.  from  Henry  Hall  100  bbls.  salt  @  $1.00  per  bbl.    Gave  him  a 

10-day  note  in  payment 

8  Prepaid  my  note  of  2nd.    Discount  6% 

9  Alexander  Blum  prepaid  his  note  of  4th.    Discount  6% 

10  Discounted  our  own  30-day  note  at  bank.    Face  of  note  $1,000.00. 

Discount  6%.    Reed,  credit  for  proceeds 

11  Prepaid  my  note  of  6th.    Discount  6% 

12  Discounted  Jacob  Claus'  note  of  5th  at  bank.    Discount  6%.    Reed. 

credit  for  proceeds 

13  Paid  clerks'  salaries  $50.00 

15  Sold  Arthur  Nathan  on  his  10-day  note  10  bbls.  flour  @  $6.00 

16  Sold  Morris  Kirk  on  his  30-day  note,  10  crates  of  eggs,  300  dozen 

(a  25c. 


ELEMENTARY  BOOKKEEPING  141 

May  17    Bot.  from  Joseph  Osborne  on  our  10-day  note,  60  tubs  butter,  2,00C 
lbs.  @  25c. 

18  Arthur  Nathan  prepaid  his  note  of  15th.    Discount  6% 

19  Sold  to  James  Cleary  for  cash  3  tubs  butter,  120  lbs.  @  30c. 

20  Discounted  Morris  Kirk's  note  of  16th  at  bank.    Discount  6%. 

Reed,  credit  for  proceeds 
Paid  clerks'  salaries  $50.00 
Paid  freight  bill  $50.00 

Exercise  20D 
Journahze  the  following  transactions: 
Apr.     1    James  Tobin  began  the   Gas   and  Electric  light  Fixture  Business 
with  cash  $1,000.00  and  mdse.  $4,500.00 
Paid  rent  of  store  $50.00 

2  Bot.  from  Thomas  Morse  2/10,  n/30,  50  brass  library  lamps  @  $10.00 

3  Bot.  from  James  Dunlap  on  our  10-day  note  25  white  enamel  kitchen 

lamps  @  $1.50 

4  Sold  Max  Bernstein  2/10,  n/30,  5  brass  library  lamps  @  $12 

5  Bot.  1  doz.  bronze  parlor  chandeliers  @  $40.00,  from  Joseph  Lapp  on 

our  10-day  note 

6  Paid  salesmen's  salaries  $30.00 
Proprietor  withdrew  for  private  use  $50.00 

8  Sold  Thomas  Jacobs  on  his  10-day  note  2  bronze  parlor  chandeliers 

@  $50.00 

9  The  proprietor  discounted  his  own  60-day  note  at  bank.    Face  of 

note  $500.00.    Rate  of  discount  6%.    Reed,  credit  for  proceeds 

10  Paid  Thomas  Morse  bill  of  2nd,  less  2%  discount 

11  Sold  Martin  Bros,  on  their  30-day  note  2  bronze  parlor  chandeliers 

@  $50.00 

12  Max  Bernstein  paid  his  bill  of  4th,  less  2% 

13  Paid  James  Dunlap  our  note  of  the  3rd  due  today 
Paid  salesmen's  salaries  $30.00 

Proprietor  withdrew  for  private  use  $50.00 

15  Paid  our  note  of  5th  due  today 

16  Discounted  Thomas  Jacob's  note  at  Union  Bank.    Discount  6%. 

Reed,  credit  for  proceeds 

17  Sold  James  Sullivan  2/10,  n/30,  5  kitchen  lamps  @  $2.50 

18  Sold  Thomas  &  Co.  2/10,  n/30,  6  haU  brackets  @  $12.00 

19  Discounted  Martin  Bros',  note  of  11th  at  bank.    Rate  of  discount 

6%.    Reed,  credit  for  proceeds 

20  Bought  from  Donaldson  &  Co.  2/10,  n/60,  2  doz.  dining  room 

chandeHers  @  $20.00  each 
Paid  salesmen's  salaries  $30.00 
Proprietor  withdrew  for  private  use  $50.00 


148  BOOKKEEPING  AND  ACCOUNTING 

Apr.  22    Sold  Jenks  &  Co.  on  their  10-day  note  10  brass  library  lamps  @ 
$12.00 

23  Proprietor  sent  home  2  bronze  parlor  chandeliers  @  $40.00  for  private 

use 

24  Proprietor  made  an  additional  investment  of  $2,000.00 

25  James  Sullivan  paid  his  bill  of  17th,  less  2% 
27    Paid  salesmen's  salaries  $30.00 

Proprietor  withdrew  for  private  use  $50.00 

29  Paid  Donaldson  &  Co.  my  bill  of  20th,  less  2% 

30  Paid  electric  Ught  bill  $15.00 
Paid  telephone  bill  $10.00 

Discounted  Jenks  &  Co.'s  note  of  22nd  at  bank.    Discount  *^%. 
Reed,  credit  for  proceeds 

Exercise  21D 

Journalize  the  following  transactions: 

Mar.    1    John  Brill  began  the  Jobbing  business  this  day,  investing  cash 
$5,000.00  and  $1,000.00  mdse 

1  Paid  rent,  $75.00 

2  Bought  from  Jackson  and  Co.,  5/10,  n/30,  5  doz.  waists  @  $10.00 

3  Sold  to  William  Matthews,  5/10,  n/30,  6  dresses  @  $10.00 

4  Retd.  to  Jackson  &  Co..  ^  doz.  of  the  waists  purchased  on  2nd  and 

reed,  credit  for  same 
6    Purchased  4  mirrors  @  $15.00  for  use  in  store;  paid  cash  for  them 
6    Paid  for  stationery  and  printing,  $15.00 
6    Sold  Arthur  Peters  6/10,  n/30,  10  dresses  @  $12.00 

8  Sold  William  Roberts  6/10,  n/30,  3  doz.  skirts  @  $25.00 

9  Wm.  Matthews  retd.  one  of  dresses  purchased  by  him  on  3rd  inst. 

and  reed,  credit  for  $10.00 

10  One  of  the  mirrors  purchased  on  5th  was  found  defective.    Retd. 

it  and  reed,  check  for  $15.00  in  this  morning's  mail 

11  Paid  Jackson  &  Co.  for  bill  of  2nd,  less  5% 

12  Reed,  from  William  Matthews  his  check  for  bill  of  3rd,  less  6% 

13  Sold  6  waists  for  cash  @  $3.00 

15    One  of  waists  sold  on  13th  was  retd.  and  customer  reed,  back  her 
money 

15  Paid  salaries  to  date  $80.00 

16  Bot.  4  doz.  skirts  @  $24.00  from  Hadley  &  Co.  for  cash 

17  Sold  Macey  &  Co.,  6/10,  n/30,  2  doz.  shirtwaists  @  $15.00 

18  Retd.  ^  doz.  of  skirts  purchased  from  Hadley  &  Co.  on  16th  and 

reed,  check  for  $12.00 

19  Sold  F.  Spear  15  dresses   @  $6.00.    Reed.  $50.00  cash,  balance 

on  acct. 


ELEMENTARY  BOOKKEEPING  140 

Exercise  22D 
Journalize  Exercise  21D,  employing  Mdse.  Purchases  and  Mdse.  Sales 
a/c8.    Post  and  take  a  Trial  Balance. 

Exercise  23D 

Prepare  a  Profit  and  Loss  Statement  and  a  Statement  of  Assets  and  Liabil- 
ities for  Exercise  22D.  Value  of  Mdse.  on  hand  $900.00  and  value  of  uncon- 
sumed  expense  items  is  $35.00. 

Exercise  24D 
Close  the  books  and  write  up  the  transactions  of  Exercise  22D. 

Exercise  25D.    (Not  assigned.) 

Exercise  26D 
1.  Journalize  the  following  transactions: 
Mar.    1    Phillip  Lane  began  the  Dress  Manufacturing  Business  this  day,  at 
131  West  25th  Street,  investmg:  Cash  $5,000.00,  mdse.  valued  at 
$1,000.00 

2  Paid  rent  of  loft  $300.00  for  month  of  March.    Installed  machinery 

at  a  cost  of  $500.00  cash 

3  Bot.  from  John  Kahn,  2/10,  n/60,  10  pes.  No.  62  taffeta,  600  yds.  @ 

$1.10 
Bot.  from  Roberts  &  Walker,  8/10,  7  pes.  No.  15  chiffon,  350  yds. 
@  $.62^,  5  pes.  No.  100  net,  240  yds.  @  $.37^ 

4  Bot.  from  Duncan  &  Co.  5/10,  6  pes.  No.  5  Lining,  360  yds.  @  $.11 
Bot.  from  Standard  Thread  Co.  2/10,  n/30,  100  boxes  No.  45  mer- 
cerized thread  @  $.50 

6    Bot.  from  M.  Levy  6/10,  50  boxes  No.  7  pins  @  50c. 
6    Paid  manufacturing  salaries  per  pay  roll  list  $250.00 

Paid  office  salaries  $30.00 

Proprietor  withdrew  for  private  use  $50.00 

8  Sold  Johnson  &  Bros.  10/10,  12  No.  945  dresses  @  $6.75 
Paid  Duncan  &  Co.'s  bill  of  4th,  less  5% 

9  Sold  Jones,  Black  &  Co.  5/10,  8  No.  916  dresses  @  $10.00,  12 

No.  945  dresses  @  $6.75 

10  Sold  John  Stevens,  Net  Job,  24  dresses  @  $3.75 

Sold  Thompson  &  Co.  6/10,  8  No.  953  dresses  @  $16.75 
Paid  M.  Levy  for  bill  of  5th,  less  6% 

11  Sold  Bryant  Cloak  &  Suit  Co.  5/10,  n/30,  3  doz.  No.  900  dresses  @ 

$3.75  each 

12  Retd.  to  John  Kahn:   2  pes.  No.  62  taffeta,  120  yds  @  $1.10  and 

reed,  credit  for  same.    Sent  them  a  check  for  balance  of  invoice 
of  3rd,  less  2% 


150  BOOKKEEPING  AND  ACCOUNTING 

Mar.  13    Paid  Standard  Thread  Co.'s  bill  of  4th,  less  2% 

Paid  manufacturing  salaries  per  pay  roll  list  $250.00 
Paid  office  salaries  $30.00 
Paid  salesman  $30.00 

Proprietor  withdrew  for  private  use  $50.00 
15    Reed.  Jones,  Black  &  Co.'s  30-day  note  in  settlement  of  bill  of  9th 

15  Bot.  from  Wells  &  Co.  for  cash  stationery  for  office  use  $50.00 

16  Sold  Johnson  Bros.  10/10,  6  No.  945  dresses  @  $6.75 

17  Sold  Ward  &  Connolly,  8/10,  12  No.  945  dresses  @  $6.75 
Bot.  from  the  Mosler  Safe  Co.  for  cash,  1  office  safe  $60.00 

18  Johnson  Bros,  paid  their  bill  of  8th,  less  10% 

Reed,  from  Thompson  &  Co.  cash  for  bill  of  10th,  less  6% 

19  Reed,  from  John  Stevens  check  for  bill  of  10th 

Discounted  at  bank  Jones,  Black  &  Co.'s  note  of  15th.    Discount  6% 

20  Paid  manufacturing  salaries  per  pay  roll  $250.00 
Paid  office  salaries  $30.00 

Paid  salesman  $30.00 

Proprietor  withdrew  for  private  use  $50.00 

22  Reed,  from  Bryant  Cloak  &  Suit  Co.  check  for  bill  of  11th,  less  5%, 

also  following  order  to  be  filled  at  usual  terms:  12  No.  910  dresses 
@  $5.50 

23  Sold  Kennedy  &  Richards  8/10,  12  No.  916  dresses  @  $10.00,  12  No. 

953  dresses  @  $16.75,  6  No.  900  dresses  @  $3.75 

24  Bot.  from  West  &  Co.  10  pes.  No.  150  messaline  500  yds.  @  75c. 

25  Reed,  from  Johnson  &  Bros,  check  for  their  bill  of  16th,  less  10% 

26  Reed,  from  Ward  &  Connolly,  check  for  their  bill  of  17th,  less  8% 
Discounted  the  firm's  60-day  note  at  bank,  face  of  note  $1,000.00, 

rate  of  discount  6% 

27  Kennedy  &  Richards  retd.  3  No.  916  dresses  purchased  on  23rd 

and  reed,  for  same  credit  for  $30.00 
Paid  manufacturing  salaries  per  pay  roll  $250.00 
Paid  office  salaries  $30.00 
Paid  salesman  $30.00 
Proprietor  withdrew  $50.00 

29  Sold  Bedford  Cloak  &  Suit  Co.  5/10,  n/30,  12  No.  916  dresses  @ 

$10.00 
Sold  Thompson  &  Co.  10/10,  12  No.  916  dresses  @  $10.00 

30  Part  of  the  stationerv  purchased  by  us  from  Wells  &  Co.  on  15th 

was  found  to  be  of  inferior  grade;  Wells  &  Co.  agreed  to  take 
unsatisfactory  part  back;  we  returned  it  yesterday  and  received 
check  for  $15.00  from  them  in  this  morning's  mail 

31  Paid  telephone  bill  $15.00 
Paid  advertising  bill  $25.00 
Paid  electric  light  bill  $25.00 


ELEMENTARY  BOOKKEEPING  151 

2.  Post  the  Journal  entries  resulting  from  the  foregoing  transactions. 

3.  Take  a  Trial  Balance. 

4.  Prepare  a  Statement  of  Profit  and  Loss  and  a  Statement  of  Assets  and 
Liabilities.  The  value  of  the  unsold  merchandise  is  $1,500.00,  unconsumed 
expense  items  are  worth  $20,00,  office  furniture  has  depreciated  10%,  and 
machinery  has  depreciated  10% 

5.  Close  the  books. 

Special  Exercises 

1.  Prepare  a  Trial  Balance,  a  Statement  of  Assets  and  Liabilities  and  a 
Profit  and  Loss  Statement  from  the  following  data:  debit  balances:  Cash 
$6,300.00,  Accts.  Rec.  $36,850.00,  Expense  $250.00,  Salaries  $4,500.00,  Notes 
Rec.  $3,000.00,  Furniture  and  Fixtures  $1,200.00,  Real  Estate  $8,000.00,  Mdse. 
Inventory,  1/1/19-,  $5,500.00  Purchases  $48,650.00,  Discount  on  Sales, 
$1,045.50,  Discount  on  Notes  $175.00,  Real  Estate  Repairs  $425.00,  Rent 
$3,600.00;  credit  balances:  Accounts  Payable  $32,150.00,  Notes  Payable 
$2,500.00,  Discount  on  Purchases  $973.00,  Sales  $55,275.00,  Samuel  Lane 
Quincy,  Cap.  $28,597.50. 

Inventories,  12/31/19-:  Mdse.  $6,350.00;  Real  Estate  $7,500.00;  Ex- 
pense $200.00;  Furniture  and  Fixtures  $1,000.00. 

2.  The  following  balances  were  taken  from  the  books  of  Frank  E.  Small, 
on  December  31,  19-,  one  year  after  the  commencement  of  his  business:  debit 
balances:  Cash  $4,500.00,  Accts.  Rec.  $24,650.00,  Expense  $850.00,  Notes 
Rec.  $2,000.00,  Salaries  $3,100  00,  Advertising  $2,200.00,  Furniture  and  Fix- 
tures $900.00,  Real  Estate  $6,000.00,  Mdse.  Inventory,  1/1/19,  $1,300.00, 
Purchases  $35,000.00,  Discount  on  Sales  $716.00,  Discount  on  Notes  $150.00, 
Real  Estate  Repairs  $350.00,  Rent  $2,400.00;  credit  balances:  Discount  on  Pur- 
chases, $700.00,  Sales  $37,800.00,  Accounts  Payable  $18,950.00,  Notes  Payable 
$3,000.00,  Frank  E.  SmaU,  Cap.  $23,666.00. 

Inventories,  12/31/19-:  Mdse.  $3,500.00,  Real  Estate  $6,000.00;  Expense 
$150.00,  Furniture  and  Fixtures  $800.00.  Prepare  a  Trial  Balance,  a  State- 
ment of  Assets  and  Liabilities  and  a  Profit  and  Loss  Statement. 

3.  Solve  Problem  1,  above,  if,  in  addition  to  the  information  given,  these 
liability  inventories  existed :  unpaid  expense  bills  not  entered  in  books  $135.00, 
salaries  accrued  not  yet  due  $275.00. 

4.  Solve  Problem  2,  above,  taking  into  consideration  the  following:  (a)  ex- 
pense bills  unpaid  and  not  entered  $27.50;  (6)  salaries  accrued  not  yet  due 
$225.00;  (c)  interest  on  deposits  allowed  and  credited  by  bank,  not  yet  entered 
in  our  books,  $4.25. 


PART  II 
INTERMEDIATE  BOOKKEEPING 

A  study  of  Part  One  served  to  familiarize  the  student 
with  the  basic  principles  of  double  entry  bookkeeping.  It 
is  the  specific  purpose  of  Part  Two  to  point  out  how  the 
practical  results  attained  in  the  earlier  division  may  be 
secured  much  more  efficiently  by  the  employment  of  sptdal 
books  of  original  entry. 


INTERMEDIATE  BOOKKEEPING 

The  bookkeeping  discussed  in  Part  One  of  this  book  has  beenj 
advisedly  called  Elementary^'  Bookkeeping.  Before  undertaking  thf; 
study  of  what  is  undoubtedly  advanced  bookkeeping,  we  shall  give 
our  attention  to  certain  topics  that,  for  the  want  of  a  better  term,  wo 
may  call  Intermediate  Bookkeeping.  The  student  is  cautioned,  how- 
ever, against  associating  with  the  term  as  herein  employed  any  definite 
divisions  of  the  subject,  because  the  sections  made  by  us  are  solely 
for  the  purpose  of  convenience  and  serve  no  other  end. 

It  may  be  well  to  state  at  the  outset  that  no  matter  what  foma 
of  books  is  employed,  and  regardless  of  what  forms  and  rulings  are 
used  by  any  particular  business,  the  transactions  will  necessarily  con- 
sist of  purchases  and  sales,  investments  and  withdrawals,  etc.  The 
difference  is  to  be  sought  in  the  method  of  recording  the  transactions, 
and  not  in  the  nature  of  the  transactions  themselves.  We  are  about 
to  show  how  the  business  dealings  which  constituted  the  subject  matter 
of  Part  One  may  be  recorded  more  efficiently  by  the  use  of  special 
books,  now  almost  invariably  a  part  of  the  bookkeeping  system  of  every 
well  regulated  concern. 

27.  The  Sales  Book 

Let  us  assume  that  a  portion  of  the  transactions  for  a  single  day 
consisted  of  the  following  sales: 

PhiUp  Long,  2/10,  n/30,  $960 .  00 

R.Brown,  on  acct.,  2,225.00 

Sumner  &  Sons,  2/10,  n/30,  1,950 .  00 

As  a  result  of  the  foregoing  transactions,  the  following  abbreviated 
Journal  entries  might  result: 

Nov.  15,  19— 


Philip  Long 

$960.00 

Mdse.  Sales 

15 

$960.00 

R.  Brown 

$2,225.00 

Mdse.  Sales 

16 

$2,225.00 

Sumner  &  Sons 

$1,950.00 

Mdse.  Sales 

- 

$1,950.00 

155 


166 


BOOKKEEPING  AND  ACCOUNTING 


Can  you  suggest  any  method  for  making  unnecessary  the  repetition 
of  the  credit  "  Mdse.  Sales,"  which  appears  for  each  transaction? 
Possibly  the  use  of  ditto  (")  marks  occurs  to  you  as  a  solution.  Or 
perhaps  you  feel  that  certain  pages  of  the  Journal  might  be  reserved 
exclusively  for  sales,  and  that  the  reservation  might  be  indicated  by 
some  appropriate  heading.  If  this  is  the  method  which  you  have  in 
mind,  it  is  quite  along  the  Hues  employed  by  those  who  have  devised 
the  modern  Sales  Book,  or  Sales  Journal  as  it  is  sometimes  called. 

The  Journal  entries  shown  above,  when  recorded  in  the  Sales  Book, 
with  their  proper  explanations,  appear  as  follows: 


L.F. 

Sales,  Nov.  15   19—^ 

Price. 

Extension. 

Amount. 

Philip  Long 
R.  Brown 

Sumner  &  Sons 

2/10,  n/30 
100  bbls.  flour 
50  bu.  wheat 

15 
On  acct. 
100  bbls.  flour 
200  bu.  wheat 
1,000  bu.  oats 
100  bbls.  apples 

15 
2/10,  n/30 
1,000  bu.  oats 
1,000  bu.  wheat 

9 
1 

9 

1 

3 

1 

00 
20 

00 
25 
75 
25 

75 
20 

900 
60 

00 
00 

960 

2,225 
1,950 

00 

900 
250 
750 
325 

00 
00 
00 
00 

00 

750 
1,200 

00 
00 

00 

The  foregoing  entries,  and  the  book  in  which  they  appear,  will  be 
^nade  clear  by  means  of  a  few 

Comments. — (a)  Carefully  study  the  arrangement  of  the  Sales 
Book  shown  above.  Observe  the  position  of  the  date,  the  customer's 
name,  terms,  the  individual  items,  the  unit  prices,  the  total  or  extension 
of  each  item,  and  the  total  amount  of  the  invoice.  But  do  not  lose 
sight  of  the  fact  that  this  book  is  a  type  form,  which,  in  actual  practice, 
is  frequently  modified. 

(6)  It  must  be  remembered  that  the  Sales  Book  or  Sales  Journal 
takes  the  place  of  the  ordinary  Journal  for  a  certain  class  of  transactions, 
namely,  sales.  For  this  class  of  dealings,  therefore,  the  Journal  will 
no  longer  be  employed.    The  old  Journal,  as  we  learned  in  Part  One, 


INTERMEDIATE  BOOKKEEPING 


157 


indicated  the  debits  and  credits  resulting  from  each  transaction.  Though 
this  indication  is  not  quite  as  clear  in  the  foregoing  Sales  Book  entries, 
the  result  in  the  Ledger  must,  nevertheless,  be  the  same  as  if  the  Journal 
had  been  used.  Hence,  on  November  15,  PhiHp  Long's  account  must 
be  charged  with  $960.00  and  the  Merchandise  Sales  account  must  be 
credited  for  the  same  amount.  A  similar  procedure,  or  posting,  is 
necessary  in  the  case  of  every  other  item  which  appears  in  the  Sales 
Book. 

(c)  When  the  account  of  Philip  Long  is  debited,  the  Ledger  page 
of  his  accoimt  is  placed  in  the  L.  F.  column  alongside  of  his  name, 
to  "  check  "  it.  This  is  analogous  to  what  was  done  when  a  similar 
posting  was  made  from  the  Journal.  The  initial  "  S  "  is  substituted 
for  **  J  "  in  the  Ledger  account,  to  show  that  the  posting  was  made 
from  the  Sales  Book  instead  of  from  the  Journal. 

(d)  Other  points  in  connection  with  the  Sales  Book  must  be  reserved 
for  another  illustration. 

Let  us  assume  that  the  sales  for  an  entire  month  resulted  in  the 
following  entries: 

Sales,  Jan.  3,  19 — 


L.F. 


T.  M.  Hopkins,  on  acct. 
20  bbls.  flour 
60  bu.  wheat 
100  bu.  oats 


C.  R.  Rover  &  Co.,  2/10,  n/30 
1000  bu.  wheat 


H.  B.  Burr  &  Sons,  30  days  net 
100  bu.  wheat 
50  bu.  oats 

24 
T.  M.  Hopkins,  on  acct. 
50  bbls.  flour 
1000  bu.  oats 

30 
Franklin  &  Co.  on  acct. 
500  bu.  wheat 


Price. 


00 
10 
40 


08 


11 

44 


00 
41 


12 


Extension. 


180 
55 
40 


111 
22 


450 
410 


00 
00 
00 


00 
00 


00 

00 


Amount. 


275 


1,080 


133 


860 


560 


00 


00 


GO 


00 


00 


158 


BOOKKEEPING  AND  ACCOUNTING 


After  posting  the  foregoing  sales  to  their  respective  Ledger  accounts, 
the  indication  of  postings  would  appear  in  the  L.  F.  column,  opposite 
each  customer's  name.  But  how  shall  the  posting  to  the  credit  side 
of  Merchandise  Sales  account  be  indicated?  Instead  of  crediting 
the  Sales  account  in  the  Ledger  for  each  individual  sale,  the  modern 
bookkeeper  saves  himself  considerable  work  by  crediting  this  account 
for  the  total  of  the  sales,  once  each  month.  After  posting  this  total, 
or  closing  the  Sales  Book,  it  appears  as  follows: 


Sales,  Jan.  3, 

19— 

L.F. 

7 
9 

Price 

Extension 

Amount 

T.  M.  Hopkins,  on  acct. 
20  bbls.  flour 
50  bu.  wheat 
100  bu.  oats 

5 
C.  R.  Rover  &  Co.,  2/10,  n/30 
1000  bu.  wheat 

9 

1 

1 

00 
10 
40 

08 

180 
55 
40 

00 
00 
00 

275 
1,080 

00 

00 

13 

7 

11 
5 

7 
H.  B.  Burr  &  Sons,  30  days  net 
100  bu.  wheat 
50  bu.  oats 

24 
T.  M.  Hopkins,  on  acct. 
50  bbls.  flour 
1000  bu.  oats 

30 
Franklin  &  Co.  on  acct. 
500  bu.  wheat 

Mdse.  Sales,  Cr.,  total  sales 

1 

9 

1 

11 

44 

00 
41 

12 

111 
22 

00 
00 

133 

860 
560 

00 

450 
410 

00 
00 

00 

00 

2,908 

00 

The  student  is  now  in  a  postion  to  appreciate  the  fact  that  the 
Sales  Book  not  only  makes  possible  the  segregating  of  all  similar  items 
in  one  book,  but  also  saves  considerable  time  in  that  it  permits  of 
curtaihng  some  of  the  writing  required  by  formal  Journal  entries.  It 
is  also  a  great  labor-saving  device  due  to  the  fact  that  instead  of  having 
to  post  to  the  credit  side  of  the  Mdse.  Sales  account  for  each  trans- 


INTERMEDIATE  BOOKKEEPING 


159 


action,  the  total  of  all  the  sales  for  an  entire  month  may  be  posted  as 
a  single  item. 

Questions 

1.  What  is  the  function  of  the  Sales  Book? 

2.  Why  is  it  a  Journal? 

3.  Is  the  Sales  Book  a  book  of  original  entry?    Why? 

4.  How  do  you  indicate  in  a  customer's  account  where  the  particulars  of  a 
debit  item  may  be  found? 

5.  Analyze  the  following  accounts: 

(a)  R.  C.  Long 


19— 

19— 

Sept.  5 

S12  $500.00 

Nov.  28 

J19 

$500.00 

Oct.  11 

U8 

300.00 

(J>) 

E.  R.  Clark  &  Co. 

19— 

19— 

May  15 

SB    $65.00 

June  3 

J7 

$89.00 

24 

19      24.00 

July  2 

19 

100.00 

June  22 

no    100.00 

Exercise  27A 

Record  the  following  transactions,  employing  a  Journal  and  a  Sales  Book: 
19— 

Nov.    1    Roland  Jones  began  business  by  investing  cash,  $5,000.00 
2    Paid  November  rent,  cash,  $100.00 

Bot.  office  furniture,  $320.00,  stationery  and  books,  $19.75,  postage 
$2.50 
2    Bot.  of  Smith  and  Bobbins,  on  acct.,  500  bbls.  flour  @  $7.50,  and 

3000  bu.  oats  @  $.90 
4    Sold  T.  Smith,  on  acct.,  200  bn.  oats  @  $1.00  and  100  bbls.  flour  © 

$8.25 
6    Sold  R.  B.  Bush,  on  acct.,  300  bti.  oats  @  $1.50  and  150  bbls.  flour 

@r  $8.25 
8    Paid  clerks'  salaries,  cash  $37.50 

12  Paid  Smith  &  Bobbins,  on  acct.,  cash  $2,500.00 

13  Sold  R.  Robbins  &  Sons,  on  acct.,  100  bbl».  flour  @  $8,40 
15    Bot.  of  Collins  &  Co.,  on  acct.,  200  bbls.  flour  @  $7.50 

Reed,  of  T.  Smith,  cash  on  acct.,  $500.00 
Paid  clerks'  salaries,  cash  $37.50 

^  Initials  need  not  be  repeated. 


160  BOOKKEEPING  AND  ACCOUNTING 

Nov.  16    Reed,  of  R.  B.  Bush,  on  acct.,  cash  $1,000.00 

20    Bot.  of  Smith  &  Bobbins,  on  acct.,  2,000  bu.  wheat  @  $.90 

Sold  T.  Smith,  on  acct.,  300  bu.  oats  @  $1.05 
22    Paid  clerks'  salaries,  cash  $37.50 

24  Sold  R.  B.  Bush,  on  acct.,  100  bbls.  flour  @  $8.40  and  200  bu.  oats 

@  $1.05 

25  Mr.  Jones  drew  cash  for  personal  use,  $50.00 

26  Mr.  Jones  sent  home  for  his  own  use,  1  bbl.  flour  @  $7.50  (Enter  in 

Sales  Book) 
29    Sold  T.  Smith,  on  acct.,  100  bbls.  flour  @  $8.40 

Paid  clerks'  salaries,  $37.50;  sundry  expense  bills,  $42.12 
Bot.  of  Pitman,  Jones  &  Co.,  on  acct.,  200  bbls.  flour  @  $8.00 

(a)  Post  the  foregoing  entries  and  close  the  Sales  Book. 

(b)  Take  a  Trial  Balance. 

Exercise  27B 

Employing  a  Sales  Book  and  a  Journal,  enter  the  following  transactions: 
19— 
Sept.    1    H.  Spencer  began  business  by  investing  cash  $10,000.00 

2  Paid  rent  of  store   $100.00,  printing  and  stationery  bills  $32.00, 

office  furniture  $200.00,  signs  $44.00 

3  Bot.  of  J.  Wallace,  500  bbls.  flour  @  $8.00,  for  cash 

Bot.  of  J.  Tyndall,  2/10,  n/30,  300  bbls.  flour  @  $8.00,  and  2000  bu. 
wheat  @  $1.00 

4  Bot.  of  M.  Thackeray  &  Son,  2/10,  n/30,  500  bbls.  flour  ©  $8.00, 

and  3,000  bu.  oats  @,  60c. 
Sold  L.  Irwin,  2/10,  n/30,  300  bbls.  flour  @  $10.00  ^ 

5  Sold  T.  Cobb  on  his  30-day  note,  100  bbls.  flour  @  $10.00 

6  Paid  salaries  of  clerks,  $60.00 

8  Sold  L.  Irwin,  on  acct.,  150  bbls.  flour  @  $10.00,  and  500  bu.  wheat  @ 

$1.20 

9  Sold  W.  J.  Cannon,  on  acct.,  300  bbls.  flour  @,  $10.50,  and  500  bu. 

oats  @  90c. 

12  Gave  J.  Tyndall  my  30-day  note  on  acct.  for  $2,400.00,  and  paid  in 

cash  the  balance  of  the  inv.  of  9/3,  less  2%  discount 
Reed,  from  L.  Irwin,  pajmaent  in  full  of  inv.  of  9/4,  less  2% 

13  Paid  M.  Thackeray  &  Son,  in  full  of  inv.  of  9/4,  less  2% 
Paid  salaries  of  clerks,  $60.00 

15    Sold  W.  J.  Cannon,  2/10,  n/30,  300  bbls.  flour  @  $10.00 
17    Reod.  from  L.  Irwin,  on  acct.,  $1,000.00 

2  Enter  all  sales  in  the  Sales  Book.  If  a  cash  transaction,  show  the  payment 
in  the  Journal.  If  the  sale  is  made  for  a  promissory  note,  show  the  receipt  of  the 
note  in  the  Journal.  Thus,  personal  accounts  will  be  kept  with  all  customers  (see 
pages  36'*and  172). 


INTERMEDIATE  BOOKKEEPING 


161 


Sept.  20    Paid  clerks'  salaries,  $60.00 

Reed,  from  W.  J.  Cannon,  on  acct.,  $1,500.00 
22    Discounted  at  bank,  my  60-day  note  at  6%,  face  $1,000.00 

24  Reed,  from  W.  J.  Cannon,  payment  in  full  of  inv.  of  9/15,  less  2% 

25  Bot.  of  W.  J.  Moncrieff,  on  acct.,  500  bbls.  flour  @  $8.50,  and  400 

bu.  wheat  @  $1.05 

26  Sold  M.  Mullin  &  Son,  on  their  15-day  note,  200  bbls.  flour  @  $10-25 

27  Paid  clerks'  salaries,  $60.00 
Discounted  M.  Mullin  &  Son's  note  at  6% 

29  Proprietor  drew  $100.00  for  private  use. 

30  Paid  W.  J.  Moncrieff,  on  acct.,  $1,500.00 


28.  THE  PURCHASE  BOOK 

The  modern  bookkeeper  employs  other  special  Journals  besides  the 
Sales  Book.  A  very  useful  and  important  one  is  the  so-called  Purchase 
Journal  or  Pm-chase  Book.  The  student  will  find  among  his  Journal 
entries,  resulting  from  the  purchase  transactions  in  Exercise  21  A, 
page  159,  the  following: 


Nov, 
Mdse.  Purchases 
Smith  &  Robbins 


Mdse.  Purchases 
Collins  &  Co. 


Mdse.  Purchases 
Smith  &  Robbins 


Mdse.  Purchases 
Pitman,  Jones  &  Co. 


2,  19— 

On  acct. 

500  bbls.  flour    $7.50 

3000  bu.  oats         .90 

15 

On  acct. 
200  bbls.  flour    $7.50 

20 

On  acct. 

2000  bu.  wheat    $.90 

29 

On  acct. 
200  bbls.  flour    $8.00 


6,450 

00 

6,450 

1,500 

00 

1,500 

1,800 

00 

1,800 

1,600 

00 

1,600 

00 


00 


00 


00 


Observe  the  repetition  of  the  debit  to  Merchandise  Purchases 
account  in  each  case.  This  writing  of  the  debit  account  is  analogous 
to  the  writing  of  the  credit  Merchandise  Sales  in  the  first  division  of 
this  chapter.  The  student  will  readily  see  that  a  saving  may  be 
effected  by  employing  a  Purchase  Book  similar  to  the  Sales  Book  pre- 


162 


BOOKKEEPING  AND  ACCOUNTING 


viously  discussed.    The  corresponding  entries  in  the  Purchase  Book 
are  as  follows: 


/Z^^C'l^cA-tZ',^-£<l<    /'Zo^*.^.^9^..■d^:/^y 2-,  /f  - 


J?-/^//  .-^L^K^/t^n^ 


2./ 


^7 


^^^^c  a<j 


/J~oc 


/^£>e^a£> 


/  ^a>4fc>^ 


The  saving  effected  in  the  amount  of  writing  necessary,  and  in 
posting,  is  exactly  the  same  as  in  the  case  of  the  Sales  Book.  This 
statement  will  appear  clearer  from  the  following  illustration  of  the 
Purchase  Book,  after  the  came  has  been  closed  for  the  month: 


// 


/2. 


XT 


y.<rc 


2-ai>i> 


.A^:3^.:-t^ 


2.y£>c 


M 


^/* 


)&i^rz..M^CU.j^^^-€^    <:W.«.«-^ 


3^CC.J^£^^^^L^ 


^C?c 


/J^;*J^.>^U**C^i!;^o^V«^^i/'i^>^^ 


(^¥^a 


/Kf<70 


/rffo 


jL^jij. 


//^^c^. 


\ 


INTERMEDIATE  BOOKKEEPING  163 

It  is  necessary  for  the  student  to  understand  that  the  posting  from 
the  Purchase  Book  is  to  the  credit  side  of  each  seller's  account  in  the 
Ledger,  where  the  initial  "  P  "  is  substituted  for  "  J  ",  and  to  the  debit 
side  of  the  Merchandise  Purchases  account.  The  result,  therefore,  is 
exactly  the  same  as  it  would  have  been  had  the  entries  been  made  in 
the  ordinary  Journal. 

Questions 

1.  What  is  the  function  of  the  Purchase  Book? 

2.  Why  is  it  proper  to  call  this  book  a  Purchase  Journal? 

3.  How  do  you  indicate,  in  a  creditor's  account,  the  origin  of  the  items 
appearing  on  the  credit  side? 

4.  Prove  that  the  postings  from  the  Purchase  Book  result  in  equal  debits  and 
credits. 

6.  Analyze  the  following  accounts: 

(a)  Hamilton,  Brown  &  Co. 


19— 

Nov. 

8 

P21 

$2,500.00 

Dec. 

24 

24 

1,850.00 

db)  Crosby  Trading  Co. 


19— 

19— 

Nov. 

10 

J20 

$1,500.00 

Oct. 

31 

P19 

$2,300.00 

Dec. 

31 

27 

800.00 

Dec. 

6 

22 

1,975.00 

Exercise  28A 

Employing  a  Purchase  Book,  a  Sales  Book  and  a  Journal,  enter  the  following 
transactions: 

19— 

Mar.    1    T.  Jones  began  business  and  invested  the  following:  cash  $5,000.00, 
mdse.  $2,000.00,  office  furniture  $900.00 
Paid  rent  $100.00 

2  Paid  stationery  and  printing  bills  $75.00 

3  Bot.  of  A.  Elkins,  2/10,  n/30,  1250  bu.  wheat  @  80c. 
Gave  A.  Elkins  my  2-mos.  note  on  acct.,  $500.00 

4  Discounted  my  4-mos.  note  at  bank  at  5%,  face  $2,000.00 

6    Sold  H.  Smith,  2/10,  n/30,  100  bbls.  flour  @  $10.00,  and  500  bu. 
wheat  @  $1.00 
Reed,  from  H.  Smith,  cash  for  J  of  inv.,  $490.00,  and  30-day  note  for 
$250.00  on  acct. 


164  BOOKKEEPING  AND  ACCOUNTING 

Mar.    6    Sold  mdse.  for  cash,  $50.00 
Paid  salaries  $100.00 

8  T.  Jones  drew  for  personal  use,  $100.00 

9  Sold  to  H.  Williams  on  30-day  note,  500  bu.  wheat  @  $1.00 
Sold  to  H.  Beecher,  2/10,  n/30,  50  bbls.  flour  @  $10.00 
Donated  to  hospital,  mdse.  $10.00 

12  Paid  for  office  furniture,  $100.00 

Retd.  to  A.  Elkins,  on  account  of  damage,  mdse.  amounting  to  $10.00 

13  Paid  A.  Elkins  for  balance  of  inv.  of  3/3,  $480.20 
Paid  salaries,  $90.00 

16    Reed,  from  H.  Smith,  in  full  of  inv.  of  3/6,  $735.00 
Exchanged  H.  Beecher 's  check  for  cash  $25.00 

19  Discounted  H.  Williams'  30-day  note  at  bank  at  5%,  proceeds  $498.53 

20  Reed,  of  H.  Beecher,  ^  of  inv.  of  3/9,  less  2%,  $245.00 
Paid  salaries,  $90.00 

22    Sold  to  H.  Williams,  2/10,  n/30,  500  bu.  wheat  @  $1.00 

Bot.  of  A.  Elkins,  2/10,  n/30,  100  bbls.  flour  @  $8.00,  and  250  bu, 
wheat  @  $.80 

24  Bot.  of  J.  Johnson,  2/10,  n/30,  625  bu.  wheat  @  $.80 

Sold  to  H.  Beecher,  2/10,  n/30,  40  bbls.  flour  @  $10.00,  and  100  bu. 
wheat  @  $1.00 

25  Paid  expense  bills,  $20.00 

Bot.  store  property,  $4,000.00    (Open  an  account  with  Real  Estate) 

27    Paid  salaries,  $90.00 

Retd.  $10.00  worth  of  mdse.  to  A.  Elkins 

H.  Beecher  retd.  to  us  mdse.  amounting  to  $10.00 

31     Mouth's  collection  and  exchange  at  bank,  $1.23 

Exercise  28B 

Write  up  the  Purchase  Book  resulting  from  the  transactions  of  Exercise 
275,  page  160. 


29.  THE  CASH  BOOK 

Experience  has  taught  us  that  whenever  a  large  number  of  similar 
transactions  occur,  it  is  well  to  segregate  them  in  a  special  book.  Thus 
we  have  been  introduced  to  the  Purchase  Book  for  merchandise  bought 
by  us  and  to  the  Sales  Book  for  merchandise  sold  by  us.  These 
special  Journals  contained  original  entries.  In  such  books  of  original 
entry  are  placed  the  first  written  book  records  of  definite  classes  of 
transactions  We  are  about  to  learn  how  to  use  another  special 
Journal  called  the  Cash  Journal  or  Cash  Book. 


INTERMEDIATE  BOOKKEEPING 


165 


Assume  that  during  the  first  week  of  November  the  following 
Journal  entries  were  made  for  cash  received  by  the  business: 


Nov.  1,  19— 
Cash 
F.  A.  Brown,  Capital 
Invested  in  Flour  and  Grain  business 


3 


Cash 
Smith  &  Co. 
On  acct. 

5 

Cash 
Thomas  Bros. 
In  full  of  acct. 

6 

Cash 
H.  Browne 
In  full  of  acct. 

1,000 

00 

1,000 

300 

00 

300 

500 

00 

500 

10 

00 

10 

00 


00 


00 


00 


Just  as  it  was  possible  to  save  ourselves  the  writing  of  "  Merchandise 
Purchases "  for  each  purchase  of  merchandise,  and  "  Merchandise 
Sales  "  for  every  sale  of  merchandise,  it  is  possible  to  obviate  the  neces- 
sity of  writing  "  Cash  "  for  each  receipt  of  money.  This  is  accomplished 
by  means  of  a  special  Cash  Journal  or  Cash  Book,  in  which  the  fore- 
going entries  would  appear  as  follows: 


Cash  Receipts 


Date. 

L.F. 

Acct.  to  be  Credited. 

Explanation. 

Amount. 

19— 

Nov. 

1 

F.  A.  Brown,  Capital 

Investment 

1,000 

00 

3 

Smith  &  Co. 

On  acct. 

300 

00 

5 

Thomas  Bros. 

In  full 

500 

00 

6 

H.  Browne 

In  full 

10 

00 

It  is  granted  that  the  foregoing  entries  are  different  in  form  froii^ 
the  corresponding  Journal  entries,  but  they  serve  the  same  purpose 


166 


BOOKKEEPING  AND  ACCOUNTING 


They  constitute  a  record  of  the  cash  received.  They  indicate,  just  as 
in  the  case  of  formal  Journal  entries,  that  in  each  instance  the  Cash 
Account  is  to  be  debited,  and  the  other  account  credited.  Hence,  as 
a  result  of  the  first  entry,  the  Cash  account  is  to  be  debited  for  $1,000.00 
and  Mr.  Brown's  Capital  account  is  to  be  credited  for  the  same  amount; 
the  second  item  shows  that  the  Cash  account  is  to  be  debited  for  $300.00, 
and  Messrs.  Smith  &  Co's.  account  credited  for  the  same  amount. 
And  similarly,  for  the  other  items.  We  thus  learn  that,  irrespective 
of  the  book  in  which  the  original  entry  appears,  the  result  in  the 
Ledger  must  be  the  same. 

It  is  also  customary  to  introduce  a  labor-sa\ing  device  for  cash  pay- 
ments. The  Cash  Book,  for  the  disbursements,  corresponding  to  the 
receipts  shown  above,  is  as  follows: 

Cash  Payments 


Date. 

L.F. 

Acct.  to  be  Debited. 

Explanation. 

Amount. 

19- 

Nov. 

1 

Expense 

Rent 

75 

00 

3 

Expense 

Stationery 

12 

50 

6 

Long  &  Co. 

On  acct. 

600 

00 

6 

Expense 

Salaries 

55 

00 

The  formal  Journal  entries  corresponding  to  the  above  Cash  Book 
entries  are  not  presented  here,  because  it  is  beheved  that  such  help  is 
no  longer  necessary,  but  it  must  be  clearly  understood  that  as  a  result 
of  the  foregoing  entries  the  following  debits  and  credits  result: 

On  the  1st,  Expense  account  debited  and  Cash  account  credited,  $75.00; 
On  the  3d,  Expense  account  debited  and  Cash  account  credited,  $12.50; 
On  the  6th,  Long  &  Go.'s  account  debited  and  Cash  account  credited,  $500.00; 
On  the  6th,  Expense  account  debited  and  Cash  account  credited,  $55.00. 

Cash  Receipts 


Date. 

L.F. 

Acct.  to  be  Credited. 

Explanation. 

Amount. 

19— 

Nov. 

1 

F.  A.  Brown,  Cap. 

Investment 

1,000 

00 

3 

Smith  &  Co. 

On  acct. 

300 

00 

5 

Thomas  Bros. 

In  full 

500 

00 

6 

H.  Browiie 

In  full 

10 

00 

INTERMEDIATE  BOOKKEEPING 


167 


We  therefore  see  that,  just  as  in  the  case  of  the  Sales  Book,  Pur- 
chase Book  and  Cash  Receipts,  the  results  in  the  Ledger  are  exactly 
the  same  as  if  the  entries  had  appeared  in  the  older  form  of  Journal. 

But  it  has  become  customary  to  use  a  Cash  Book  so  arranged  that 
the  left  page  is  used  for  receipts  of  cash,  and  the  adjoining  right-hand 
page  for  the  disbursements  of  cash.  Such  an  arrangement,  in  the 
case  of  the  cash  items  above  recorded,  would  be  as  shown  below. 

We  have  seen  that  the  Cash  Book  makes  possible  the  saving  of  the 
writing  of  the  term  "  Cash  "  for  every  transaction  involving  the  receipt 
or  disbursement  of  cash.  We  have  also  seen  that  the  Cash  Book  makes 
possible  a  segregation  similar  to  that  which  is  effected  by  means  of 
the  Sales  Book  and  the  Purchase  Book.  We  have  still  to  show  that  the 
Cash  Book  makes  possible  the  posting  of  totals  so  that  it  constitutes 
an  additional  labor-saving  device.  Let  us  assiune  that  the  items 
shown  in  the  above  illustration  of  the  Cash  Book  constitute  the  total 
receipts  and  disbursements  for  the  month  of  November.  The  indi- 
vidual items  would  be  posted  as  previously  indicated,  whereas  the 
total  receipts  of  cash  would  be  carried  by  means  of  a  single  posting 
to  the  debit  side  of  the  Cash  account  in  the  Ledger.  Similarly,  the 
total  cash  payments  would  be  posted  to  the  credit  side  of  the  Cash 
account  in  the  Ledger.  After  making  these  postings  and  closing  the 
Cash  Book,  it  would  appear  as  at  the  top  of  pages  168  and  169. 

Observe  that  the  balance  is  written  on  the  smaller,  or  payment,  side 
of  the  Cash  Book  in  order  to  make  both  sides  of  the  Cash  Book  equal. 
This  is  similar  to  what  was  done  in  Part  One,  when  closing  the  Cash 
account  of  the  Ledger.  The  balance  is  carried  over  to  the  first  Une 
of  the  receipt  side  of  the  Cash  Book  for  the  following  month,  and  sub- 
sequent entries  are  then  made  in  the  Cash  Book,  as  before.  The  first 
entry  for  December  would  appear  as   on  pages  170  and  171. 

Some  bookkeepers  do  not  post  the  total  of  cash  receipts  and  cash 
payments.    They  hold  that,  inasmuch  as  the  Cash  Book  shows  the 


Cash  Pajrments 


Date. 

L.F. 

Acct.  to  be  Debited. 

Explanation. 

Amoun\i. 

19— 

Nov. 

1 

Expense 

Rent 

75 

00 

3 

Expense 

Stationery 

12 

50 

6 

Long  &  Co. 

On  acct. 

500 

00 

6 

Expense 

Salaries 

i   55 

00 

168 


BOOKKEEPING  AND  ACCOUNTING 
Cash  Receipts 


Date. 

L.F. 

Acct.  to  be  Credited. 

Explanation. 

Amount. 

19— 

Nov. 

1 
3 
5 

6 

1 

3 

8 
5 

2 

F.  A.  Brown,  Cap. 
Smith  &  Co. 
Thomas  Bros. 
H.  Browne 

Cash  Dr. 

Investment 
On  acct. 
InfuU 
InfuU 

Total  Receipts 

1,000 

300 

500 

10 

00 
00 
00 
00 

1,810 

00 

1,810 

00 

balance  of  cash  on  hand,  as  well  as  the  total  receipts  and  disburse- 
ments, to  carry  the  total  of  both  sides  to  the  Ledger  is  an  unneces- 
sary procedure.  Though  the  step  may  undoubtedly  be  dispensed  with, 
it  is  a  much  better  practice  to  have  a  Cash  account  in  the  Ledger, 
despite  the  fact  that  the  Cash  Book  answers  the  same  purpose.  No 
hardship  is  involved,  because  the  labor  necessary  to  make  the  transfer 
once  a  month  is  almost  negligible. 

Questions 

1.  What  is  the  function  of  the  Cash  Book? 

2.  How  can  the  balance  of  cash  be  found? 

3.  What  is  the  relation  between  the  Cash  Book  and  the  Cash  account? 

4.  Is  the  Cash  Book  a  book  of  original  entry  or  a  book  of  final  entry?    Why? 
6.  Explain  clearly  what  saving  is  effected  by  employing  the  Cash  Book. 

Exercise  29A 
Write  up  the  Cash  Book  for  the  transactions  of  Exercise  21  A,  page  159. 

Exercise  29B 

1.  Enter  the  foUowing  transactions  in  a  Journal,  Sales  Book,  Purchase  Book 
and  Cash  Book: 
19— 

Mar.  1  M.  L.  Searby  began  business  by  investing  cash,  $5,000.00  and  300 
bbls.  flour  worth  $8.50  per  bbl.» 

'  It  is  customary  to  show  the  opening  entry  in  the  Journal,  for  the  fuU  investment, 
even  when  a  Cash  Book  is  employed.  Many  bookkeepers  "  check  "  the  debit  to  the 
cash  account  in  the  Journal,  that  is,  they  place  a  check  (V)  mark  in  the  Ledger  Folio 
column,  to  indicate  that  the  item  is  not  to  be  posted.  Similarly,  they  check  the 
entry  in  the  Cash  Book,  so  as  iioi  to  credit  the  proprietor's  account  from  this  book. 
The  reason  is  simple  enough:   Merchandise  account  is  debited  for  $2^550.00  ixom 


INTERMEDIATE  BOOKKEEPING 
Cash  Payments 


im 


Date. 

LF. 

Acct.  to  be  Debited. 

Explanation. 

Amount. 

19— 

Nov. 

1 
3 
6 
6 

4 

4 

11 

4 

2 

Expense 
Expense 
Long  &  Co. 
Expense 

Cash,  Cr. 
Balance  * 

1 

Rent 

Stationery 
On  acct. 

Salaries 

Total  Disbursements 

75 

12 

500 

55 

00 
50 
00 
00 

642 
1,167 

50 
50 

1,810 

00 

Mar. 


11 


Paid  rent  of  store,  $80.00 

Sold  Thos.  Jones,  on  acct.,  10  bbls.  flour  @  $9.75 

Paid  cash  for  books  and  stationery  $41.00,  furniture  $380.00,  tjrpe- 

writer  and  desk  $110.00 
Bot.  of  N.  Y.  Flour  Co.,  on  acct.,  500  bbls.  flour  @  $8.60 
Thos.  Jones  paid  us  in  full  of  acct.,  $97.50 
Paid  clerks  $48.00,  sundry  expense  items  $9.37 
Paid  N.  Y.  Flour  Co.,  on  acct.,  cash  $2,500.00 
Sold  Thos.  Jones,  on  acct.,  25  bbls.  flour  @  $10.00 
Paid  cash  for  printing,  $12.50 


the  Journal;  Cash  account  is  debited  from  the  Cash  Book  for  $5,000.00  when  the 
total  of  the  month's  cash  receipts  is  posted;  Mr.  Searby's  account  is  credited 
for  $7,550.00  from  the  Journal. 

Instead  of  checking  the  items  not  to  ^e  posted,  it  has  now  become  fashionable 
to  accompUsh  the  same  purpose,  and  at  the  same  time  indicate  the  reason  for  the 
action,  by  substituting  for  the  checks  the  pages  of  the  books  wherein  the  same  item 
is  to  be  found.  The  procedure  is  still  called  checking,  however.  The  Journal  and 
Cash  Book  entries  for  Mr.  Searby's  investment  follow: 

Journal  Entry 

Mar.  1,  19— 


C.B.I 

4 
1 


Casa 

Mdse.  Inventory 
M.L.Searby.Cap 


Investment: 

Cash  $5,000.00 

300  bbls.  Flour     8.50 


5,000 
2,550 


7,550    OQ 


Cash  Book  Entry.    Receipt  Side 


Mar. 


Jl 


M.  L.  Searby,  Cap. 


Part  Investment 


5,000    00 


*  Red  ink,  usually.    Horizontal  lines  are  also  usually  in  red  ink. 


170 


BOOKKEEPING  AND  ACCOUNTING 
Cash  Receipts 


Date. 

L.F. 

Acct.  to  be  Credited. 

Explanation. 

Amount. 

19— 
Dec. 

1 

Balance 

1,167 

50 

Mar.  13    Bot.  of  N.  Y.  Flour  Co.,  on  acct.,  200  bbls.  flour  @  $8.70 

Bot.  of  Western  Produce  Co.,  on  acct.,  2,500  bu.  oats  @  80c.  and 

2,000  bu.  wheat  @  $1.00 
Paid  clerks,  $48.00 
16    Sold  E.  A.  Kimmerling,  on  acct.,  100  bbls.  flour  @  $10.00,  500  bu. 

oats  @  95c.  and  500  bu.  wheat  @  $1.25 
18    Sold  Charles  Schmidt,  on  acct.,  200  bbls.  flour  @  $10.00,  and  1,000 

bu.  oats  @  95c 
20    Reed,  cash  on  acct.,  as  follows: 

E.  A.  Kimmerling,  1,500.00 

Charles  Schmidt,  2,000.00 

Paid  N.  Y.  Flour  Co.,  balance  of  invoice  of  4th  inst.,  $1,800.00 
Paid  Western  Produce  Co.,  cash  on  acct.,  $2,500.00 
Paid  clerks,  $54.00 
27    Paid  clerks,  $54.00 
30    Reed,  of  Thomas  Jones,  cash  in  full  qf  acct.,  $250.00 

Sold  E.  A.  Kimmeriing,  on  acct.,  50  bbls.  flour  @  $10.00,  and  200 
bu.  wheat  @  $1.25 

2.  Post  the  entries  resulting  from  the  foregoing  transactions,  and  close  the 
Flirchase  Book,  Sales  Book  and  Cash  Book. 

3.  Take  a  Trial  Balance. 

4.  Prepare  a  Statement  of  Assets  and  Liabilities  and  a  Profit  and  Loss 
Statement.  Merchandise  Inventory,  $8,500.00,  depreciation  on  office  furniture 
10%,  expense  inventory  $25.00. 

5.  Close  the  books. 


30.  GENERAL  APPLICABILITY  OF  THE  SPECIAL  JOURNALS 

We  have  learned  that  the  Sales  Book,  the  Purchase  Book  and  the 
Cash  Book  were  only  special  forms  of  the  Journal.  The  special  books 
are  designed  to  facilitate  the  making  of  the  original  entries  for  fre- 
quently recurring  types  of  transactions.    The  older  form  of  Journal 


INTERMEDIATE  BOOKKEEPING  -      171 

Cash  Payments 


Date. 


L.F.  Acct.  to  be  Debited. 


Explanation. 


Amount. 


is  accordingly  reserved  for  transactions  which  cannot  readily  be  placed 
in  the  special  Journals.  It  would  be  well,  now,  to  review  the  various 
kinds  of  transactions  which  we  have  already  learned  how  to  enter,  so 
as  to  test  the  general  usefulness  of  the  books  introduced  in  this  section. 
Let  us,  therefore,  consider  the  following  types,  which,  while  not 
exhaustive,  are  sufficient  for  our  present  purposes: 

(a)  Proprietor's  investment,  together  with  withdrawals  of  money 

and  merchandise. 

(6)  Sales  for  cash  and  on  account, 

(c)  Purchases  for  cash  and  on  account. 

{d)  Sales,  part  payment  in  cash,  balance  on  account, 

(e)  Purchases,  part  payment  in  cash,  balance  on  account. 

(/)  Notes  received  from  customers,  on  account,  and  in  full  of  account. 

(g)  Notes  given  to  creditors  on  account  and  in  full  of  account. 

(h)  The  notes  in  (/)  and  (gr),  above,  paid  at  maturity. 

(i)  Customer's  notes  received  by  us,  discounted  at  the  bank. 

(j)  Discounting  our  own  notes  at  the  bank. 

(k)  Prepayment  of  a  purchase. 

(0  Prepayment  of  a  sale, 

(w)  Sales  returned  to  us. 

(n)  Purchases  returned  to  us. 

Though  the  above  Ust  is  by  no  means  exhaustive,  it  will  suffice, 
for  our  present  purposes,  to  teach  how  the  books  of  original  entry  which 
were  introduced  in  this  section,  together  with  the  older  form  of  Journal, 
are  available  for  the  recording  of  the  items  hsted. 

(a)  Proprietor's  Accoimt. — We  have  already  seen  how  to  record  the 
investment  (page  168)  and  withdrawal  of  money.  When  the  proprietor 
takes  goods  for  his  own  use,  his  account  is  charged  and  either  Mer- 
chandise Sales  or  Merchandise   Purchases   is   credited.     It  is  much 


172 


BOOKKEEPING  AND  ACCOUNTING 


more  usual  to  credit  the  Sales  account  than  the  Purchase  account.' 
The  entry  for  the  withdrawal,  therefore,  would  be  shown  in  the  Sales, 
Book,  as  a  result  of  which  the  Proprietor's  account  would  be  debited 
and  Sales  account  credited. 

(b)  Sales. — Sales  on  account  will  give  no  trouble.  For  cash  sales, 
obviously  enough,  both  the  Cash  Book  and  the  Sales  Book  must  be 
employed.  The  first  question  to  decide  is  which  of  the  following 
entries  would  have  been  used  had  the  entry  appeared  in  the  old  form  of 
Journal: 


Cash 


Mdse.  Sales 


and 


Customer 

Mdse.  Sales 
Cash 

Customer 


We  saw  in  the  first  division  of  this  work  that  the  decision  to  employ 
either  the  first  or  the  second  of  the  above  forms  depended  upon  om* 
judgment  regarding  the  value  of  keeping  Ledger  accounts  with  all  cus- 
tomers regardless  of  whether  they  bought  for  cash  or  on  account.  If 
we  decided  to  keep  no  personal  accounts  with  cash  customers,  then,  as 
a  result  of  entries  in  both  the  Sales  Book  and  in  the  Cash  Book,  Cash 
account  would  be  debited  and  Sales  account  credited.  This  would  be 
accomplished  by  the  following  entries: 


Entry  in  Sales  Book: 
L.F. 


Date 


C.B.5 


Frank  Vose,  Cash 

(Details  regarding  the  items  sold) 


Entry  in  Cash  Book: 
L.F. 


Receipt  Side 


Date 


S.8 


Cash  Sales 


Frank  Vose 


5  If  the  proprietor  is  charged  with  the  cost  of  the  goods  taken,  the  Purchase  ac- 
count is  sometimes  credited  to  correspond;  but  if  the  charge  is  made  at  the  selling 
price,  the  credit  is  to  the  Sales  account.  However,  the  Sales  account  is  used  more 
frequently,  regardless  of  the  price  at  which  the  merchandise  is  charged. 


INTERMEDIATE  BOOKKEEPING 


173 


Observe  that  neither  the  Sales  Book  entry  nor  the  Cash  Book 
entry  is  posted  to  any  ledger  account.  The  Cash  Book  item  will 
result  in  a  debit  to  Cash  account,  when  the  total  cash  receipts  are 
posted  at  the  end  of  the  month.  The  corresponding  credit  will  be 
to  the  Sales  account,  when  the  Sales  Book  total  is  posted,  also  at  the 
end  of  the  month. 

On  the  other  hand,  if  we  favor  the  keeping  of  personal  accounts  with 
all  customers,  regardless  of  whether  they  purchased  for  cash  or  on 
account,  and  this  is  probably  the  wisest  policy,  the  following  entries 
would  result: 


Entry  in  Sales  Book; 
L.F. 


Date 


15 


Frank  Vose,  Cash 

(Details  regarding  the  items  sold) 


Entry  in  Cash  Book: 
L.F. 


Receipt  Side 


15 


Frank  Vose 


Inv.  of  today 


We  favor  the  latter  entries  for  reasons  already  familiar  to  the 
student.  There  is  no  essential  difference  between  the  entries  required 
to  record  a  sale  on  account  subsequently  settled  in  cash,  and  a  cash 
sale.  This  is  so  because  the  sole  difference  is  one  of  time;  in  the  first 
instance  payment  was  deferred,  in  the  second  it  was  simultaneous  with 
the  sale.  Moreover,  the  term  of  sale,  "  Cash  ",  has  come  to  mean 
not  spot  cash,  i.e.,  not  cash  paid  simultaneously  with  the  delivery  of 
the  goods,  but  the  equivalent  of  "  Net."  Payment  is  then  made  ac- 
cording to  the  custom  of  the  trade  or  industry,  frequently  soon  after 
the  first  of  the  month  following  the  sale;  sometimes  within  a  few  days 
after  the  receipt  of  the  invoice. 

(c)  Purchases. — The  manner  of  recording  a  purchase  on  account 
was  made  clear  in  the  first  division  of  this  section,  page  162.  How  to 
enter  the  payment  on  the  payment  side  of  the  Cash  Book  was  shown  in 
the  third  division,  page  166.  Let  us  now  consider  the  record  for  a  cash 
purchase.  We  may  employ  either  of  two  methods,  similar  to  the  en- 
tries for  a  cash  sale.     The  method  corresponding  to  the  second  solution 


174 


BOOKKEEPING  AND  ACCOUNTING 


for  a  cash  sale  is  the  better  one.  By  means  of  it  we  first  charge  Pur- 
chases account  and  credit  the  seller's  account,  and  then  charge  the 
seller's  account  and  credit  Cash  account.  The  following  illustration 
will  make  the  statement  clear: 


Entry  in  Purchase  Book : 


Date 


24 


R.  Jones  &  Co.,  Cash 

(Details  regarding  the  items  bought) 


Entry  in  Cash  Book: 


Payment  Side 


24 


R.  Jones  &  Co.    Inv.  of  today 


Expense  items  purchased  for  cash  should  cause  no  difficulty.  An 
entry  on  the  pa3anent  side  of  the  Cash  Book,  charging  Expense  account 
or  some  subdivision  of  the  Expense  account,  suffices.  When  furniture 
is  bought  for  cash,  the  entry  is  also  made  on  the  disbursement  side 
of  the  Cash  Book,  and  results  in  a  charge  to  Furniture  and  Fixtures 
account. 

(d)  Sales  {Continued). — ^Were  a  simple  Journal  the  only  book  of 
original  entry  employed,  the  following  would  be  the  solution  for  a  sale 
of  $1,000.00,  $200.00  cash,  balance  on  account. 


Cash 

$200.00 

Customer 

800.00 

Sales 

$1,000.00 

But  because  most  business  men  would  wish  to  show  the  full  sale 
in  the  Ledger,  the  following  Journal  entries  are  preferred: 

Customer  $1,000.00 

Sales  $1,000.00 

and, 

Cash  $200.00 

Customer  200.00 

The  entries  in  the  Sales  Book  and  Cash  Book  would  be  based  upon 
the  second  of  the  two  foregoing  solutions,  so  that  the  customer  would 
be  charged  for  the  full  amount  from  the  Sales  Book,  and  credited  with 
$200.00  from  the  Cash  Book. 


INTERMEDIATE  BOOKKEEPING 


175 


(e)  Purchases  (Continued). — The  entries  for  a  purchase  correspond- 
ing to  the  above  sale  would  be  shown  in  the  Purchase  Book  and  the 
Cash  Book.  In  the  former,  the  entry  for  the  entire  purchase  would  be 
shown,  so  that  the  seller  would  be  credited,  while  the  record  for  the 
part  payment  would  be  shown  on  the  payment  side  of  the  Cash  Book, 
whence  the  creditor  would  be  charged.  The  credit  balance  in  the 
creditor's  account  would  indicate  the  amount  still  due  by  us  on 
account  of  the  purchase. 

(f)  Notes  Receivable. — ^As  no  special  provision  has  been  made  for 
recording  notes  received  from  customers,  they  must  continue  to  be 
placed  in  the  Journal.  If  a  memorandum  Bill  Book  is  employed 
(pages  397),  it  is  to  be  used  in  addition  to  the  usual  Journal  record. 

(g)  Notes  Payable. — The  entry  for  notes  issued  by  us  would  be 
shown  in  the  Journal,  because  no  special  provision  had  been  made  for 
such  transactions.  A  memorandum  entry  in  the  Bill  Book  (page  398) 
should  also  be  shown. 

(h)  Payment  of  Notes. — The  entry,  when  a  note  received  from  a  cus- 
tomer is  paid  at  maturity,  must  appear  on  the  receipt  side  of  the  Cash 
Book.    It  will  be  equivalent  to  the  following  Journal  entry: 


Cash 


$1,000.00 


Notes  Receivable 


$1,000.00 


and  is  as  follows: 

Receipt  side  of  the  Cash  Book: 


Notes  Receivable 


Smith  paid  his  note  of 
July  1 


1,000 


00 


The  entry  for   the   payment  of  our  own  note  at  maturity  would 
appear  on  the  payment  side  of  the  Cash  Book  as  follows: 


Notes  Payable 


Paid   our  note  of  June 
3,  favor 


1,000 


00 


(i)  Discounted  Notes  Receivable*— But  if  the  notes  discussed  in  (/), 
above,  had  been  discounted,  we  know  that  a  JoiUTial  entry,  of  which 
the  following  is  a  typ^e^  wtiuld  be  required: 


Cash  $995t00 

DiscoOnt  on  Notes  5 .  00 

NoteS  Receivable 


$1,000.00 


176 


BOOKKEEPING  AND  ACCOUNTING 


The  manner  of  recording  this  transaction,  when  a  Cash  Book  is 
used,  must  now  be  shown.  A  general  principle  of  universal  appli- 
cation will  aid  us.  No  matter  in  what  book  of  original  entry  the 
record  is  made,  the  final  Ledger  accounts  must  be  affected  in  exactly 
the  same  way.  Hence,  in  order  to  credit  Notes  Receivable  account 
from  the  Cash  Book,  the  following  entry  is  necessary  on  the  receipt 
side: 


Notes  Receivable 


Dis.  Smith's  note  of 
5/3 


1,000 


00 


It  is  also  necessary  to  debit  Discount  on  Notes  account  from  the 
Cash  Book.  This  is  accompUshed  by  the  following  entry  on  the  pay- 
ment side: 


Discount  on  Notes 


30  days'  discount  on 
Smith's  note 


00 


We  thus  see  that  the  debit  to  Discount  on  Notes  account  and  the 
credit  to  Notes  Receivable  account  can  be  obtained  by  means  of  Cash 
Book  entries.  But  how  shall  we  debit  the  Cash  account  for  $995.00, 
a  step  which  is  apparently  still  necessary  in  order  to  prove  that  the  same 
result  is  obtained  without  the  use  of  the  formal  Journal?  This  step  has 
already  been  taken.  The  entry  on  the  receipt  side  of  the  Cash  Book 
($1,000.00),  less  the  entry  on  the  payment  side  ($5.00),  is  exactly 
equivalent  to  a  single  debit  of  $995.00.  It  is  admitted  that  the  entry- 
is  somewhat  cumbersome,  and  later  in  our  studies  we  shall  learn  of  a 
more  efficient  method  of  recording  such  transactions. 

Some  bookkeepers  would  make  an  entry  in  the  Journal  and  another 
in  the  Cash  Book  for  this  transaction: 

In  the  Journal: 


C.B.8 


Cash 

Diecount  on  Notes 
Notes  Rec. 


is.  Smith's 

995 

00 

note  of  5/3 

5 

00 

1,000 

00 


In  the  Cash  Book,  on  the  receipt  side: 


J5 


Notes  Rec. 


Dis.  Smith's  note,  pro- 
ceeds 


995 


00 


INTERMEDIATE  BOOKKEEPING 


177 


Though  the  foregoing  entries  clearly  record  and  express  the  trans- 
action, it  is  not  recommended  that  the  student  adopt  them. 

(j)  Discounting  Notes  Payable. — Sometimes  money  is  borrowed  from 
the  bank,  as  we  already  know.  In  such  cases  a  promissory  note  is 
issued,  and  it  is  made  payable  either  to  our  own  order,  and  indorsed, 
or  else  it  is  made  payable  to  the  order  of  the  bank.  Such  notes, 
especially  the  so-called  single  name  paper,  are  also  *'  sold  "  to  note 
brokers — dealers  in  commercial  paper — who  practically  lend  money  to 
the  maker  of  the  note.  In  either  case,  we  have  learned  that  the  fol- 
lowing Journal  entry  is  typical  of  the  record  made  when  the  note  is 
discounted  at  the  bank,  or  sold  to  a  broker: 


Cash 

Discount  on  Notes 
Notes  Payable 


$1,176.00 
24.00 


$1,200.00 


However,  as  the  Cash  Book  must  be  employed,  observe  how  the 
following  entries  give  the  same  result: 
On  the  receipt  side: 


Notes  Payable 


Dis.  my  4-mos.  note  at 
bank 


1,200 


00 


On  the  payment  side: 
Discount  on  Notes 


4-mos.    discount   on 
my  note 


24 


00 


The  Journal  and  Cash  Book  entries  which  some  bookkeepers  would 
employ  are  analogous  to  the  entries  shown  for  corresponding  Notes 
Receivable,  above. 

(k)  Purchases  Prepaid. — The  student  has  learned  that  when  we 
prepay  a  purchase,  that  is,  when  we  pay  for  it  ahead  of  time  so  as  to 
avail  ourselves  of  the  cash  discount,  the  following  type  of  Journal 
entry  results: 


Thos.  West 
Cash 
Discount  on  Purchases 


$320.00 


$313.60 
6.40 


178 


BOOKKEEPING  AND  ACCOUNTING 


We  accomplish  the  same  purpose  by  the  following  Cash  Book 
entries: 

On  the  payment  side: 


Thos.  West 


On  the  receipt  side: 

Discount  on  Pur- 
chases 


Inv.  5/3,  less  2% 


Thos.  West,  Inv.  5/3 


320 


00 


40 


The  student  should  be  able  to  prove  that  the  foregoing  Cash  Book 
entries  serve  the  same  purpose  as  the  Journal  entry  to  which  they 
correspond. 

(1)  Sales  Prepaid. — To  the  following  type  Journal  entry  for  the 
receipt  of  money  to  prepay  a  previous  sale : 


Cash  $392.00 

Discount  on  Sales  8.00 

Franklin  &  Co. 

there  corresponds  the  following  Cash  Book  entries: 
On  the  receipt  side : 

Franklin  &  Co.  Inv.  3/2,  less  2% 


$400.00 


400 


00 


On  the  payment  side: 
Discount  on  Sales 


Inv.  5/2, 
Franklin  &  Co. 


00 


(m)  Returned  Sales. — ^A  Journal  entry,  as  hitherto,  suffices  for 
returned  sales: 


Sales 


$12.50 


Thos.  Jones 


$12.50 


Some  accountants  favor  a  special  book  for  such  returns.  Where  a 
special  Returned  Sales  Book  is  employed,  the  returns  are  entered  as 
they  occur,  and  the  posting  is  similar  to  that  from  the  Sales  Book. 
Each  customer  is  credited,  while  Sales  account  is  charged,  with  the  total 
of  the  returns  made  during  the  month,  at  the  end  of  c^&ch  month. 


INTERMEDIATE  BOOKKEEPING 


179 


(n)  Returned  Purchases. — The  entries  resulting  from  purchases 
Tetumed  by  us  are  similar  to  those  outlined  for  returned  sales  in  (m), 
above. 

Questions 

1.  Indicate  the  saving  resulting  from  the  use  of  the  special  books  employed 
in  this  section. 

2.  Describe  the  uses  of  the  Journal,  taking  into  consideration  that  a  Sales 
Book,  a  Purchase  Book  and  a  Journal  are  employed. 

3.  Show  why  it  is  better  to  open  an  account  with  Thomas  Jones,  who  bought 
some  goods  from  us  for  cash,  than  merely  to  debit  Cash  account  and  credit 
Sales  account. 

4.  Does  the  Sales  Book  indicate  the  accounts  to  be  debited  and  credited? 
Explain  fully. 

5.  From  memory,  mle: 

(a)  A  Sales  Book  page,  labeling  each  column. 

(6)  A  Purchase  Book  page,  labeling  each  column. 

(c)  Both  sides  of  the  Cash  Book,  labeling  each  column. 

6.  Prove  that  the  entry  on  page  178,  for  the  Thomas  West  transaction,  is 
equivalent  to  the  following  entries: 

In  the  Journal: 


C.B.3 


Thos.  West 
Cash 
Discount  on  Purchases 


320 


00 


313 
6 


60 
40 


In  the  Cash  Book,  on  the  payment  side: 
J2      Thos.  West 


313     60 


(For  Exercises,  see  p.  180.) 

SUMMARY  OF  INTERMEDIATE  BOOKKEEPING 

It  was  pointed  out  at  the  beginning  of  the  present  chapter  that  a 
division  between  Elementary  and  Intermediate  Bookkeeping  is  purely- 
arbitrary.  The  subject  of  bookkeeping  is  so  extensive  that  it  is  wise, 
for  teaching  purposes,  to  divide  it  into  several  parts.  Accordingly, 
we  have  selected  the  present  subdivision  for  the  purpose  of  presenting 
certain  phases  of  bookkeeping  connected  with  special  books  of  original 
entry.     It  has  furthermore  been  shown  that  these  special  Journals-^ 


180  BOOKKEEPING  AND  ACCOUNTING 

the  Cash  Book,  the  Purchase  Book  and  the  Sales  Book— -facilitated  the 
routine  involved  in  recording  business  transactions. 

The  special  point  to  be  emphasized,  however,  is  that,  regardless  of 
what  books  of  original  entry  are  employed,  the  resulting  debits  and 
credits  in  the  Ledger,  and  the  fundamental  principle  of  double  entry 
bookkeeping  never  vary.  Further  modification  of  the  books  of  original 
entry,  together  with  other  phases  of  our  subject,  are  discussed  in  the 
chapter  deaUng  with  advanced  bookkeeping. 

Questions 

1.  What  advantages  are  secured  by  employing  a  Sales  Book  instead  of  a 
Journal? 

2.  What  advantages  are  secured  by  employing  a  Purchase  Book  instead  of  a 
Journal? 

3.  What  advantages  are  secured  by  employing  a  Cash  Book  instead  of  a 
Journal? 

4.  Explain  how  to  record  the  discounting  of  our  note  at  the  bank,  when  a 
Cash  Book  is  employed. 

5.  Should  a  cash  account  be  kept  in  the  Ledger  when  a  Cash  Book  is  em- 
ployed?   Explain  fully. 

6.  Justify,  in  terms  of  the  basic  principles  of  double  entry  bookkeeping,  a 
Sales  Book  and  a  Cash  Book  entry  for  a  cash  sale  of  merchandise. 

7.  Show  that  the  basic  principle  of  double  entry  bookkeeping  is  observed, 
when  recording  a  prepayment  by  us  of  a  purchase  of  merchandise  amounting 
to  $500.00,  made  previously,  on  which  a  discount  of  2%  is  allowed  us- 

Exercise  30A 

1.  Enter  the  transactions  of  Exercise  26J5,  page  128,  employing  a  Cash 
Book,  a  Sales  Book,  a  Purchase  Book  and  Journal. 

2.  Close  the  books  of  original  entry. 

3.  Post  and  take  a  Trial  Balance. 

(A  Statement  of  Assets  and  Liabilities  and  a  Profit  and  Loss  State- 
ment need  not  be  prepared  at  this  point,  because  such  statements  were 
prepared  in  connection  with  Exercise  26B,  and  will  be  called  for  in  Ex- 
ercise 42A.) 

Exercise  SOB 

Repeat  the  instructions  contained  in  1,  2  and  3  of  Exercise  30^1,  for  Ex- 
ercise 26C,  page  136. 

Exercise  30C 

Repeat  the  instructions  contained  in  1,  2  and  3  of  Exercise  SOA,  for  Ex- 
trciae  26Z),  page  149. 


PART  III 
ADVANCED   BOOKKEEPING 

The  universality  of  double  entry  bookkeeping 
principles  is  emphasized  in  this  division.  The 
aim  of  this  section  is  to  show  how  to  obtain  the 
maximum  of  bookkeeping  results  at  a  minimum 
expenditure  of  time  and  energy. 


ADVANCED    BOOKKEEPING 

As  was  pointed  out  in  the  previous  section,  the  distinction  between 
Elementary,  Intermediate,  and  Advanced  Bookkeeping,  is  mainly 
arbitrary.  We  have  already  discussed  the  divisions  of  Bookkeeping 
which  we  have  seen  fit  to  include  under  the  headings  of  Elementary 
and  Intermediate.  There  remain  for  discussion  certain  topics  which 
we  shall  treat  under  the  heading  of  Advanced  Bookkeeping.  These 
topics  are,  essentially,  the  use  of  special  columns  in  books  of  original 
entry,  the  employment  of  controlling  accounts,  and  the  preparation 
of  modern  Balance  Sheets  and  Income  Statements. 

Special  Columns  in  Books  of  Original  Entry 

We  have  already  learned  how  the  use  of  special  Journals,  such  as 
the  Sales  Book,  Purchase  Book  and  Cash  Book,  have  facilitated  detailed 
bookkeeping,  and  how  other  advantages  have  accrued,  due  to  their 
use.  As  a  further  means  of  reducing  the  detailed  work  necessarily 
involved  in  all  bookkeeping  procedure,  much  has  been  made  of  so- 
called  extra  or  special  columns  in  certain  books  of  original  entry.  We 
shall  introduce  this  topic  by  showing  how  the  advantages,  which  we 
are  about  to  present,  may  be  enjoyed  by  utilizing  more  fully  the  Cash 
Book  form  with  which  the  student  is  already  familiar. 

31.  Expense  Column  on  the  Credit  Side  of  the  Cash  Book 

The  student  might  observe  that  many  of  the  disbursements  made 
during  the  month  are  for  expense  items.  In  fact,  the  majority  of  dis- 
bursements, other  than  to  creditors,  may  be  grouped  imder  the  general 
head  of  "  Expense."  This  statement  would  be  somewhat  modified, 
of  course,  where  the  Expense  account  is  broken  up  into  such  other 
accounts  as  Wages,  Salaries,  Stationery,  Printing,  etc.  But,  for  our 
present  purposes,  let  us  assume  that  the  Expense  account  includes  most 
of  the  charges  which  are  very  frequently  carried  to  the  subdivisions 
of  the  Expense  account.  In  this  case,  we  would  find  It  quite  advan- 
tageous to  use  the  second  column  on  the  disbursement  side  of  the  Cash 
Book — the  column  which,  as  the  student  must  have  observed,  was 

183 


184 


BOOKKEEPING  AND  ACCOUNTING 


practically  unused  in  previous  sets — for  collecting  all  disbursements 
chargeable  to  Expense  account.  Were  we  to  do  so,  then,  instead  of 
posting  each  individual  expense  item  to  the  debit  side  of  the  Expense 
account,  we  could  post  the  entire  amount,  as  a  total,  monthly.  Where 
the  expense  column  is  so  employed  in  the  Cash  Book,  it  appears  as 
follows: 

Cash  Disbursements 


19— 

L.F. 

Account  to  be 
Debited. 

Explanation. 

Expense. 

General. 

Jan. 

2 

V 

Expense 

Rent 

75 

00 

5 

6 

Lewis  Bros. 

On  acct. 

300 

00 

7 

9 

Rand  &  Co. 

In  full 

500 

00 

8 

V 

Expense 

Salary 

35 

00 

12 

12 

Fur.  &  Fix. 

Office  furniture 

100 

00 

15 

16 

Discount 

On  Jones's  note,  1/4 

4 

50 

15 

V 

Expense 

Salary 

35 

00 

19 

V 

Expense 

Sta.  $17;  print.  $11 

28 

00 

23 

6 

Lewis  Bros. 

On  acct. 

150 

00 

23 

V 

Expense 

Salary 

35 

00 

26 

15 

Notes  Payable 

My  note  favor  J.  G. 
1/15 

400 

00 

30 

V 

Expense 

Salary 

35 

00 

31 

V 
2 

8 

Expense 
Expense,  Dr. 
Cash,  Cr. 

Postage 

Total 

Total  for  the  month 

6 

00 

249 

249 

00 

00 

1,703 

50 

Balance  ^ 

420 

25 

2,123 

75 

Comments. — (a)  Notice  that  all  the  expense  items  are  extended 
into  the  first  money  column,  while  all  other  items  are  carried  into  the 
second  money  column.  Obviously  enough,  the  columns  might  have 
been  transposed.  This  arrangement  effectively  separates  cash  payments 
chargeable  to  Expense  from  all  other  cash  payments  made  during  the 
corresponding  period. 

(6)  In  order  to  avoid  posting  individual  expense  items  to  the 
Expense  account  in  the  Ledger,  note  the  small  check  mark  placed  in  the 
Ledger  Folio  column  opposite  each  expense  item.    As  the  student 

^  In  red  ink. 


ADVANCED  BOOKKEEPING  185 

learned  before,  this  check  or  tick  (V)  is  a  device  employed  by  book- 
keepers to  denote  that  the  item  to  which  it  refers  is  not  to  be  posted. 
Instead  of  posting  these  individual  expense  items,  the  total  is  posted 
(to  page  2  of  the  Ledger)  as  indicated. 

(c)  But,  as  it  is  necessary  to  obtain  the  full  amount  of  the  cash 
disbursements  for  the  month,  observe  how  the  total  of  the  expense 
payments,  besides  being  posted  as  indicated  in  the  preceding  para- 
graph, has  been  carried  to  the  second  money  column. 

{d)  It  is  hardly  necessary  to  point  out  that  corresponding  to  the 
single  debit  of  $249.00,  carried  to  the  Expense  account  in  the  Ledger, 
Cash  has  been  effectively  credited  by  adding  this  amount  to  the  second 
column  of  the  Cash  Book,  before  obtaining  the  Cash  Balance  at  the 
end  of  the  month. 

Questions 

1.  To  what  use  may  the  second  column  on  the  disbursement  side  of  the 
Cash  Book  be  put? 

2.  What  advantages  result  from  employing  a  special  column  for  expense 
items? 

3.  Prove  that  debits  and  credits  of  equal  amount  result  from  using  the 
Cash  Book  illustrated  in  this  section. 

Exercise  31A 

Show  the  Cash  Book  which  would  result  from  using  the  ordinary  receipt 
side  and  the  special  column  disbursement  side  for  Exercise  3C,  page  130. 

Exercise  31B 
Repeat  Exercise  31A,  above,  for  Exercise  3D,  page  138. 

32.  An  Extra  Column  on  the  Receipt  Side  of  the  Cash  Book  for  Sales 
Discounts  Allowed  to  Customers 

We  are  about  to  illustrate  how  the  column  on  the  receipt  side  of  the 
Cash  Book,  which  corresponds  to  the  newly  introduced  Expense  Column 
on  the  disbursement  side  of  the  Cash  Book,  may  be  employed  to  effect 
a  similar  saving  in  posting.  Let  us  utilize,  for  our  present  illustration, 
the  well-known  fact  that  customers  who  prepay  their  purchases  from 
us  are  entitled  to  a  cash  discount  for  such  prepayment.  Hitherto  it 
has  been  customary  to  record  on  the  receipt  side  of  the  Cash  Book 
the  receipt  of  a  payment  in  full,  and  then  to  offset  this  entry  by  another 
one  on  the  credit  side  of  the  Cash  Book  for  the  amount  not  received, 
i.e.,  for  the  amount  of  the  sales  discount  allowed.    To  ref»eeh  the 

/ 


186 


BOOKKEEPING  AND  ACCOUNTING 


student's  memory,  let  us  consider  the  entry,  as  previously  made,  to 
record  the  following  transaction: 

July  8    Reed,  of  Thomas  Smith  in  full  for  invoice  of  July  2,  less  2%  discount, 
his  check  for  $980.00 

Entry  on  the  receipt  side  of  the  Cash  Book  was  as  follows: 


July 


Thomas  Smith 


Inv.  7/2,  less  2% 


1,000 


00 


Entry  on  the  payment  side  of  the  Cash  Book  was  as  follows: 


July 


Dis.  on  Sales 


T.  Smith,  Inv.  7/2 


20 


00 


It  must  be  clear  to  the  reader  that  the  foregoing  entries  are  rather 
cumbersome,  and,  in  addition,  they  fail  to  express  truly  the  transaction, 
as  it  occurred.  It  is  not  absolutely  true  that  we  received  $1,000.00  from 
Smith  and  then  returned  to  him  $20.00,  though  we  are  willing  to  grant 
that,  for  practical  purposes,  this  interpretation  is  acceptable.  Never- 
theless, we  are  now  prepared  to  record  the  transaction  in  a  manner 
which  should  remove  the  objection  to  the  entry,  based  upon  a  reahza- 
tion  that  it  does  not  exactly  correspond  to  the  facts  in  the  case.  Let 
us  reserve  the  first  money  column  on  the  receipt  side  of  the  Cash  Book 
for  sales  discounts,  then  the  entry  for  the  transaction  in  question  would 
appear  as  follows: 

Dis.  on  Sales.         General. 


July 


Thomas  Smith 


Inv.  7/2,  less  2% 


980 


00 


Is  it  not  clear  that  the  second  money  column  on  the  receipt  side  of 
the  Cash  Book  clearly  indicates  how  much  actual  cash  was  received 
from  Smith?  But  how  can  we  show  in  Mr.  Smith's  account  that  his 
pajmaent  of  $980.00  canceled  his  indebtedness  to  us  of  $1,000.00? 
By  simply  crediting  him  with  $1,000.00,  either  in  a  single  item  or  in 
two  items,  as  follows: 

(a)  Thomas  Smith 


July 


S.B. 


1,000 


00 


July 


8 


G.B. 


1,000 


00 


ADVANCED  BOOKKEEPING 


187 


or 

(6) 

Thomas  Smith 

July 

2 

S.B. 

8 

1,000 

00 

July 

8 

C.B. 
Dis. 

7 

980 
20 

00 
00 

Most  bookkeepers  prefer  the  first  of  the  two  postings  shown,  on  the 
ground  that  there  is  less  labor  attached  to  the  entry  of  a  single  item 
than  to  two  items.  The  reader  is  advised,  in  the  absence  of  special 
requirements,  to  employ  the  postings  shown  in  (a),  above.  The  fol- 
lowing page  of  the  Cash  Book  illustrates  its  appearance  when  kept 
in  accordance  with  the  principles  just  outUned: 

Cash  Receipts 


Date. 

L.F. 

Account  to  be 
Credited. 

Explanation. 

Dis.  on 

Sales. 

General. 

July 

1 

1 

Robert  Hart 

Investment 

6,000 

00 

3 

5 

Knight  Bros. 

On  acct. 

300 

00 

7' 

6 

Wm.  Jones 

Inv.  7/1,  less  2% 

8 

00 

392 

00 

8 

7 

Thomas  Smith 

Inv.  7/2,  less  2% 

20 

00 

980 

00 

15 

5 

Knight  Bros. 

InfuU 

200 

00 

18 

6 

Wm.  Jones 

Inv.  7/12,  less  2% 

16 

00 

784 

00 

23 

10 

Knight  Bros. 

Inv.  7/17,  less  2% 

10 

00 

490 

00 

25 

3 

Fur.  &  Fix. 

Sold  office  desk 

50 

00 

26 

7 

Thomas  Smith 

On  acct. 

100 

00 

29 

11 

Reed  &  Son 

Inv.  7/22,  less  2% 

18 

00 

882 

00 

29 

4 

Notes  Receivable 

2-mo.  Brown,  due 
today 

1,000 

00 

31 
31 

14 

24 
8 

White  &  Co. 
Dis.  on  Sales,  Dr. 
Cash,  Dr. 

Inv.  ./25,  less2% 
Total  for  month 
Total  receipts 

12 

00 

688 

00 

84 

00 

11,766 

00 

Comments. — (a)  Observe  that  the  general  column  of  the  Cash  Book 
shows  the  full  amount  of  cash  received  during  the  current  month. 

(6)  The  first  money  column  shows  the  cash  not  received,  i.e.,  the 
discount  allowed  to  customers  for  prepayment. 

(c)  Of  course,  customers  are  credited,  not  with  the  amount  of  cash 
received  from  them,  but  with  the  amount  which  their  payment  can- 
celed.   Accordingly,  in  the  case  of  Smith,  corresponding  to  the  credit 


188  BOOKKEEPING  AND  ACCOUNTING 

to  his  account  of  $1,000.00  (July  8),  we  have  a  debit  to  Cash  Account 
(cash  receipt)  of  only  $980.00.  How  can  we  estabhsh  the  necessary 
equiUbrium  in  the  Ledger?  Another  debit  of  $20.00  must  be  made. 
But  to  what  account?  No  other  account  than  Discount  on  Sales 
account  suggests  itself. 

(d)  We  have  shown  in  the  previous  paragraph  that  Discount  on 
Sales  account  must  be  debited  for  $20.00  as  a  result  of  the  Smith 
transaction.  It  could  similarly  be  proved  that  the  same  account 
should  be  debited  for  the  other  discounts  allowed.  But  this  simply 
indicates  the  posting  from  this  special  column,  namely.  Discount  on 
Sales  account  must  be  debited  for  the  total  discount  allowed,  monthly. 
This  procedure  has  been  clearly  indicated  by  the  entry  on  the  31st  of 
the  month. 

Questions 

1.  Prove  that  equal  debits  and  credits  would  result  from  the  entries  shown 
in  the  Cash  Book,  illustrated  on  page  187. 

2.  To  which  side  of  Discount  on  Sales  account  in  the  Ledger  should  the  total 
of  discounts  allowed  be  posted?    Why? 

3.  Criticise  this  "  rule  "  taken  from  a  book  on  bookkeeping: 

"  Items  appearing  on  the  debit  side  of  the  Cash  Book  must  be  posted 
to  the  credit  side  of  the  designated  Ledger  accounts." 

4.  Indicate  what  advantages  result  from  employing  the  special  column 
illustrated  in  this  section. 

Exercise  32A 

Employing  the  transactions  of  Exercise  18C,  page  134,  show  the  receipt  side 
of  the  Cash  Book  which  would  result. 

Exercise  32B 

Show  the  Cash  Book  for  Exercise  18B,  page  62  using  the  two  special  col- 
umns introduced  in  this  and  in  the  preceding  section. 


33.  Other  Special  Colimms  in  the  Cash  Book 

We  have  just  learned  how  to  utihze  both  columns  on  each  side  of 
the  ordinary  Cash  Book,  but  when  occasion  arises,  bookkeepers  employ 
Cash  Books  with  more  than  two  columns  on  each  side.  We  are  about 
to  illustrate  the  use  of  a  Cash  Book  having  three  columns  on  the  dis- 
bursement side.    The  additional  colunm  is  introduced,  let  us  say, 


ADVANCED  BOOKKEEPING 


189 


because  the  business  makes  use  of  promissory  notes  in  such  large  volume 
that  the  redemption  of  these  notes  constitutes  a  considerable  number 
of  cash  payments.    The  following  form  will  be  readily  understood: 

Cash  Disbursements 


19— 

L.F. 

Account  to  Be 
Debited. 

Explanation. 

Notes 
Payable. 

Expense. 

GeneraL 

Mar. 

1 

>/ 

Expense 

Rent 

100 

00 

4 

V 

Notes  Payable 

2-mo.  favor  J.  G. 

500 

00 

6 

8 

Fur.  &  Fix. 

Office  furniture 

125 

00 

8 

V 

Expense 

Salary 

50 

00 

10 

V 

Notes  Payable 

1-mo.  favor  R.  B. 

800 

00 

14 

15 

Thom  Bros. 

On  acct. 

400 

00 

15 

V 

Expense 

Salary 

50 

00 

17 

V 

Notes  Payable 

15-day  favor,  J.  J. 

600 

00 

18 

20 

The  Lane  Co. 

In  full 

1,000 

00 

20 

V 

Expense 

Postage 

10 

00 

22 

V 

Expense 

Salary 

50 

00 

25 

V 

Notes  Payable 

2-mo.  favor 
L.  &B. 

700 

00 

26 

24 

C.  Cole 

On  acct. 

800 

00 

29 

12 

Discount 

On  my  note 

10 

00 

29 

V 

Expense 

Salary 

50 

00 

30 

V 

Notes  Payable 

1-mo.  favor  C.  C. 

900 

00 

31 

V 
6 

Notes  Payable 
Notes  Payable, 

15-day  favor, 
W.  B. 

950 

00 

5 
2 

Dr. 
Expense,  Dr. 
Cash,  Cr. 

Total 
Total 
Total 

4.450 

00 

4,450 
310 

00 

310 

00 

00 

7,095 

00 

Balance  ^ 

6,500 

00 

13.595 

00 

^  In  red  ink. 

Comments. — (a)  Observe  that  the  additional  column  for  Notes 
Payable  was  added  to  the  left  of  the  ordinary  columns.  The  position 
is  not  essential,  however. 

(6)  Instead  of  charging  Notes  Payable  account  in  the  Ledger,  for 
each  disbursement  to  take  up  individual  notes,  notice  that  the  posting 
is  made  as  a  total  at  the  end  of  the  month,  and  that  the  separate  items 
are  checked  in  the  L.  F.  column.  The  practice  of  posting  individual 
items  to  the  Notes  Payable  account  has  by  no  means  been  dis- 
continued, however. 


190  BOOKKEEPING  AND  ACCOUNTING 

(c)  The  total  disbursements,  for  the  purpose  of  redeeming  notes, 
is  carried  into  the  general  column,  as  is  also  the  total  of  Expense 
disbursements,  so  as  to  obtain  the  total  disbursements  for  the 
month. 

(d)  It  is  hardly  necessary  to  point  out  that,  corresponding  to  the 
charge  to  Notes  Payable  account  in  the  Ledger,  we  have  a  credit  to 
Cash  in  the  Cash  Book. 

Questions 

1.  Show  what  advantages  result  from  employing  a  special  column  for 
Notes  Payable,  as  indicated  in  this  section. 

2.  Suggest  another  column  which  might  be  advantageously  added  to  the 
pajmaent  side  of  the  Cash  Book.    Why? 

3.  Name  a  column  which  might  be  added  to  the  receipt  side  of  the  Cash 
Book,  and  state  what  good  results  would  accrue. 

4.  Summarize  the  advantages  which  result  from  the  employment  of  addi- 
tional columns  in  the  Cash  Book. 

Exercise  33 

Employing  the  transactions  of  Exercise  20D,  page  147,  show  the  disburse- 
ment side  of  the  Cash  Book  resulting  therefrom.     Follow  model,  page  189. 


34.  Special  Columns  in  the  Sales  Book 

1.  Cash  Sales  Column. — The  student  must  note  that  in  many  lines 
of  business  sales  are  frequently  made  for  cash,  to  people  who  are  not 
regular  customers  of  he  .  ouse,  and  even  to  strangers  with  whom  no 
subsequent  deriUngs  will  in  all  probability  be  had.  Though  it  is  prob- 
ably better,  even  in  such  cases,  to  open  a  Ledger  account  with  each 
customer,  many  bookkeepers  object  to  the  labor  of  opening  accounts 
except  with  regular  customers.  It  is  accordingly  necessary  to  arrange 
to  handle  such  sales  in  an  efficient  manner.  Obviously  enough.  Cash 
account  must  be  debited  and  Merchandise  Sales  account  credited  for 
each  transaction  in  the  class,  but  as  we  have  special  books  now,  this 
means  that  we  must  make  an  entry  in  the  Cash  Book  and  another 
entry  in  the  Sales  Book.  The  Cash  Book  entry  might,  weU  enough, 
appear  in  the  general  eolumn,  though  a  special  Oash  Sales  column  is 
very  frequently  employed  for  these  items.  In  the  Sales  Book,  it  is 
frequently  desired  to  separate  cash  sales  from  ordinary  sales.    By 


ADVANCED  BOOKKEEPING 


191 


employing  a  special  Cash  Sales  column,  the  separation  becomes  simple. 
The  following  Sales  Book  illustration  will  make  this  point  clear: 


Sales,  June  8, 

19— 

L.F. 

Extensions. 

Cash. 

On  Account. 

3 

Robert  Bros.  2/10,  n/30 
500  yd.  No.  10  Ribbon  $1 .00 
300  yd.  No.  5  Ribbon         .60 

600 
180 

00 
00 

680 

00 

5 

10 
F.  Flower    On  acct. 
2,000  yd.  No.  42  Ribbon    .  50 

1,000 

00 

1,000 

00 

V 

14 
John  Holt       Cash 

10  yd.  No.  66  Ribbon       1.50 
5  yd.  No.  54  Ribbon       2.00 

15 
10 

00 
00 

25 

00 

3 

20 
Robert  Bros.      2/10,  n/30 
2,000  yd.  No.  66  Ribbon  1.50 

3,000 

00 

3,000 

00 

V 

22 
H.  March       Cash 

5  yd.  No.  42  Ribbon           .50 
50  yd.  No.  10  Ribbon         1.00 

2 
5 

50 
00 

7 

50 

6 

25 
John  Holt    On  acct. 

3,000  yd.  No.  25  Lace      1.00 

3,000 

00 

3,000 

00 

V 

2 
2 

29 
Mr.  Cash       Cash 

1  yd.  No.  29  Lace             1.25 
6  yd.  No.  55  Ribbon           .50 

Total' 
30 
Mdse.   Sales,   Cr.,   Total  Cash 
Sales 

Mdse.  Sales,   Cr.,  Total  Tune 
Sales 

1 
3 

25 
00 

4 

25 

7,716 

75 

36 

75 

7,680 

00 

'  The  total  of  the  Cash  and  On  Account  columns  should  equal  the  total  of  the 
Extensions  column. 


192  BOOKKEEPING  AND  ACCOUNTING 

Comments. — (a)  Observe  where  the  unit  price  (in  this  case  the  price 
per  yard),  appears.  Also  note  that  individual  extensions  appear  in 
the  first  column,  properly  labeled. 

(5)  Ordinary  sales  are  carried  into  the  last  column  headed  "  On 
Account." 

(c)  Cash  Sales  appear  in  the  second  column,  as  shown.  It  is  assimied 
that  here  '*  Cash  "  means  payment  made  simultaneously  with  the  sale. 

(d)  Note  the  use  of  "  Mr.  Cash  "  on  the  29th.  When  a  buyer's 
name  is  not  obtained  it  is  usual  to  charge  the  sale  to  "  Cash  "  or  to 
"  Mr.  Cash." 

(e)  The  total  of  the  Cash  Sales  column  is  credited  to  Merchandise 
Sales  account  in  the  Ledger.  Corresponding  to  this  credit  there  is  a 
debit  on  the  receipt  side  of  the  Cash  Book.  It  would  be  wrong  to 
credit  the  Sales  account  again  from  the  Cash  Book,  and  so  care  must 
be  taken  to  check  the  corresponding  Cash  receipts  in  the  Cash  Book, 
to  avoid  dupUcate  posting. 

(/)  Notice  that  for  the  people  to  whom  the  cash  sales  were  made, 
no  posting  is  necessary,  as  it  is  assumed  that  no  Ledger  account  will 
be  kept  with  them.  The  checks  indicate  the  absence  of  such  posting. 
Instead  of  ticks  the  corresponding  Cash  Book  pages  might  be  employed. 

(g)  The  total  of  the  "  On  Account "  column  is  credited  to  the 
Merchandise  Sales  account,  as  indicated.  The  corresponding  debit 
will  be  found  in  the  charges  to  the  individual  accounts  of  the  customers. 

2.  Departmental  Columns. — One  of  the  arguments  in  favor  of 
keeping  complete  double  entry  books,  such  as  those  with  which  the 
student  is  already  familiar,  is  that  it  enables  the  proprietor  to  learn 
not  only  the  net  profit  as  a  result  of  the  operations  for  a  period,  but  also 
the  sources  of  such  profits.  Certain  organizations,  Hke  merchants  and 
traders,  often  wish  to  know  the  amount  of  sales,  not  only  in  total  volume, 
but  also  by  departments.  The  Sales  Book  lends  itself  very  nicely  to 
the  task  of  supplying  this  information.  By  the  use  of  additional 
columns,  almost  any  degree  of  detailed  information  regarding  the 
classes  of  goods  sold  is  obtainable.  The  illustration  on  page  193  will 
make  the  subject  clearer. 

Comments. — (a)  The  total  of  the  extension  column  will  give  the 
total  sales  for  the  period  under  review.  Some  bookkeepers  prefer  to 
show  the  total  of  each  invoice  in  a  fifth  column,  but  this  is  hardly  neces- 
sary now,  though  sometimes  desirable. 

(6)  Note  that  instead  of  crediting  Merchandise  Sales  account  for 
the  total  sales,  the  Sales  account  of  each  department  is  credited  in  the 


ADVANCED  BOOKKEEPING 
Sales,  Aug.  9,  19— 


193 


Invoice 

L.  F. 

Exten- 
sion. 

Ribbons. 

Laces. 

Silk! 

5 

The  Martin  Co.  2/10,  n/30 
1.000  yd.  No.  10  Ribbon.... 

$1.00 

1,000 

00 

500  yd.  No.    5  Ribbon 

.60 

300 

00 

1,300 

00 

600  yd  No.  99  Silk 

1.50 

750 

00 
00 

750 

00 

2,050 

12 

8 

The  Carter  Co.,  On  acct. 

2,000  yd.  No.  42  Ribbon 

.50 

1.000 

00 

1,000  yd.  No.  66  Ribbon 

1.50 

1,500 

00 

2,500 

00 

1,000  yd.  No.  25  Lace 

1.00 

jl.OOO 

00 

500  yd.  No.  54  Lace 

2.50 

1,250 

00 
00 

2,250 

00 

4,750 

16 

10 

John  D.  Wood  2/10.  n/30 

1,000  yd.  No.  87  Silk 

500  yd.  No.  85  Silk 

1.25 
1.00 

1.250 
600 

00 
00 

500  yd.  No.  80  Silk 

2.00 

1,000 

00 
00 

2,750 

00 

2,760 

20 

18 

Price  &  Co.     On  acct. 

500  yd.  No.  80  Silk 

2.00 

1,000 

00 

1,000 

00 

2,000  yd.  No.  42  Ribbon 

.50 

1,000 

00 

500  yd.  No.  10  Ribbon 

1.00 

500 

00 

1.500 

00 

1,000  yd.  No.  25  Lace 

1.00 

1,000 

00 

300  yd.  No.  54  Lace 

2.50 

750 

00 

1,750 

00 

4,250 

00 

28 

24 

Asher  Bros.     On  acct. 

2,000  yd.  No.  66  Ribbon 

1,000  yd.  No.    5  Ribbon 

1.50 
.60 

3,000 
600 

00 
00 

500  yd.  No.  10  Ribbon.  .  . 

1.00 

500 

00 

4,100 

00 

1,000  yd.  No.  75  Lace 

3.00 

3,000 

00 

800  yd.  No.  25  Lace 

1.00 

800 
7,900 

oo 

00 

3,800 

00 

31 

30 
32 
34 

Ribbons  Sales.  Cr.,  total  for  month 
Laces  Sales,  Cr.,  total  for  month 
Silka  Sales,  Cr.,  total  for  month 

9,400 

00 

7,800 

00 

4,500 

00 

IH  BOOKKEEPING  AND  ACCOUNTING 

Ledger,  with  the  amount  representing  the  sales  of  each  respective 
department  for  the  period. 

(c)  Corresponding  to  all  these  credits,  there  are  the  individual  debits 
to  the  Ledger  accounts  of  the  customers. 

(d)  Any  other  subdivision  of  the  Sales  Book,  arising  out  of  the  needs 
of  particular  lines  of  business,  may  be  built  upon  the  basis  of  the  prin- 
ciples illustrated  in  the  foregoing. 

Questions 

1.  What  advantage  is  gained  by  using  additional  columns  in  the  Sales 
Book? 

2.  Show  that  the  departmentalized  Sales  Book  entries  result  in  debits  and 
credits  of  equal  amount. 

3.  What  special  columns  would  you  advise  for  Mr.  Moore's  business? 
(See  Exercise  17D,  page  145.) 

Exercise  34A 
Emplojdng  a  departmentalized  Sales  Book,  show  the  entries  therein  for  the 
sales  of  Exercise  18D,  page  145. 

Exercise  34B 
Show  the  entries  in  a  departmentalized  Sales  Book  for  the  sales  of  Exer- 
cise 19D,  page  146. 

35.  Special  Columns  in  the  Purchase  Book 

Divisions  similar  to  those  illustrated  in  connection  with  the  Sales 
Book  may  be  introduced  in  the  Purchase  Book,  when  occasion  arises. 
We  shall  content  ourselves  with  showing  departmental  columns  in  this 
book  of  original  entry. 

In  order  to  ascertain  the  difference  between  the  sales  and  purchases 
of  each  department,  it  is  necessary  not  only  to  secure  information 
regarding  the  departmental  sales,  but  the  corresponding  departmental 
purchases  must  also  be  determined.  The  ruling  on  page  195  is  almost 
self-explanatory. 

Comments. — (a)  Observe  that  the  purchases,  unhke  the  sales,  are 
of  single  classes  of  items.  This  is  due  to  the  fact  that  wholesalers 
usually  purchase  from  mills  or  specialists,  and  so  it  is  not  very  usual  to 
find  many  purchase  invoices  of  large  concerns,  containing  more  than 
a  single  class  of  goods. 

(6)  The  purchases  of  each  department  are  charged  to  the  corre- 
sponding purchase  accounts,  as  indicated. 

(c)  To  offset  the  debits  so  resulting,  the  various  creditors'  (sellers') 
accounts  are  credited  in  the  Ledger. 


ADVANCED  BOOKKEEPING 

Purchases,  Aug.  6,  19 — 


195 


Invoice 
Exten- 
sion. 

Ribbont. 

Laces 

SUkt. 

35 

38 

42 

45 
50 

30 
32 
34 

The  Eureka  Mills.     2/10,  n/60 
2.000  yd.  No.  10  Ribbon  .  $.75 
2,000  yd.  No.  5  Ribbon  .        .40 
5,000  yd.  No.  66  Ribbon  .1.00 

10 
American  Mills.     On  acct. 

2.000  yd.  No.  99  Silk 1.10 

1,500  yd.  No.  87  Silk 90 

1,000  yd.  No.  80  Silk 1.50 

2,000  yd.  No.  85  Silk 70 

15 

Norton  Mills.     On  acct. 

3,000  yd.  No.  25  Lace 75 

2,000  yd.  No.  75  Lace 2.50 

800yd.  No.  54  Lace....  2.00 

19 

Arlington  Mills.     On  acct. 

5,000  yd.  No.  42  Ribbon  .      .35 
2,500  yd.  No.  55  Ribbon  .1.75 

26 
The  FuUerton  Mills  2/10,  n/30 

1,000  yd.  No.  80  Silk 1.50 

1,500  yd.  No.  99  Silk 1.10 

31 
Ribbons  Pur.,  Dr.,  total  for  month 

Laces  Pur.,  Dr.,  total  for  month 

SUks  Pur.,  Dr.,  total  for  month 

1,500 

800 

5.000 

00 
00 
00 

00 

00 
00 
00 
00 

00 

00 
09 
00 

7,300 
6,125 

00 
00 

8.850 

00 

6,450 
3,150 

7.300 

2,200 
1,350 
1,500 
1,400 

00 

6,450 

2,250 
5,000 
1,600 

8,850 

1,750 
4,375 

00 

00 
00 

6,125 

1,500 
1.650 

00 

00 
00 

00 

00 

3,150 

13,425 

00 

8,850 

00 

9.600 

OO 

Questions 

1,  What  benefits  result  from  departmentalizing  the  Purchase  Book? 

2.  Prove  that  the  posting  from  this  Purchase  Book  results  in  equal  debits 
and  credits. 


196  BOOKKEEPING  AND  ACCOUNTING 

3.  What  special  columns  would  you  advise  for  Mr.  Purse's  busine&sT 
(Exercise  12J5,  page  41.) 

4.  How  can  you  ascertain  the  total  of  all  merchandise  purchased  during  the 
month? 

Exercise  35A 

Employing  a  departmentalized  Purchase  Book,  show  the  entries  therein  for 
the  purchases  of  Exercise  21D,  page  148. 

Exercise  35B 

Show  the  entries  in  a  departmentalized  Purchase  Book  for  the  purchases  of 
Exercise  8D,  page  141. 

Controlling  Accounts 

The  use  of  special  columns  in  books  of  original  entry  amply  justifies 
itself.  We  have  already  seen  how  the  employment  of  such  additional 
columns  produces  a  desirable  segregation  of  like  items,  and  also  how 
it  minimizes  the  volume  of  posting  necessary.  We  are  now  about  to 
learn  how  the  employment  of  such  special  columns  makes  possible  the 
use  of  one  of  the  most  important  improvements  introduced  by  modern 
accounting. 

36.  Accounts  Receivable  Account 

Assmne  that  at  the  end  of  the  first  month  of  business  the  following 
tabulation  truly  represents  what  our  customers  owe  us.  You  will 
notice  that  in  the  aggregate  they  owe  us  $4,015.00,  or  as  the  book- 
keeper might  say,  Accounts  Receivable  equal  $4,015.00. 

John  Smith $   200.00 

Baldwin  &  Co 500.00 

Fount  &  Co 1,000.00 

H.  Jackson 300.00 

John  Paige 150.00 

Wm.  Sumner 400.00 

Cleary  Bros 615.00 

A.  Philips 50.00 

V.  Robinson 600.00 

Rand  Bros 200.00 

$4,015.00 


In  actual  practice  the  number  of  accounts,  as  you  know,  might  be 
many  more.     Concerns  that  have  hundreds  of  such  customers'  accoimts 


ADVANCED  BOOKKEEPING 


197 


on  their  books  find  it  convenient  to  place  in  a  separate  Ledger,  called 
the  Sales  Ledger,  the  Customers'  Ledger  or  sometimes  the  Accounts 
Receivable  Ledger,  all  accounts  dealing  with  their  customers.  When 
it  is  desirable  to  ascertain  how  much  individual  customers  owe,  this 
Ledger  is  referred  to;  and  when  it  is  desired  to  ascertain  how  much 
all  customers  owe  us  in  the  aggregate,  it  is  necessary  to  make  a  Hst  of 
all  the  balances  in  this  Ledger,  in  order  to  ascertain  that  fact,  or  rather, 
we  should  have  said,  it  was  necessary  to  proceed  in  this  manner,  until 
recently. 

Nowadays,  the  up-to-date  bookkeeper  employs  a  very  useful  device 
by  means  of  which  the  total  of  Accounts  Receivable  may  easily  and 
accurately  be  ascertained.  We  are  about  to  illustrate  the  method  by 
means  of  which  this  important  information  is  obtained. 

Theoretically,  a  new  account  might  be  opened,  styled,  if  you  please, 
Accounts  Receivable.  This  account  might  be  debited  to  correspond  to 
all  the  debits  found  in  the  individual  accounts  of  the  different  cus- 
tomers. Similarly,  this  account  might  be  credited  in  the  aggregate 
to  correspond  to  the  individual  credits  in  the  separate  customers' 
accoimts  in  the  special  Ledger  to  which  we  have  already  referred.  The 
question  now  arises,  how  may  this  summary  Accounts  Receivable  be  so 
debited  and  so  credited,  without  entaihng  much  additional  labor? 
For  we  take  it  as  a  fact  that  the  student  reahzes  the  value  of  having  such 
a  summary  account  by  means  of  which  he  could  save  himself  the  labor 
of  tabulating  all  the  balances  of  all  the  accounts  in  the  separate  Cus- 
tomers' Ledger. 

This  Accounts  Receivable  account  would  be  substituted  in  the 
Ledger  for  the  customers'  accoimts  which  hitherto  were  entered  there, 
but  which  now  appear,  for  convenience,  in  a  separate  Ledger.  The 
first  Ledger  is  now  called  the  General  Ledger,  while  the  other,  a  subsidi- 
ary Ledger,  is  styled  Sales  Ledger  or  Customers'  Ledger. 

The  appearance  of  this  Customers'  Sunmiary  account,  corresponding 
to  the  schedule  of  individual  balances  shown  on  the  previous  page, 
might  be  as  follows: 

Accoimts  Receivable 


19— 

19— 

Jan. 

31 

S.B. 

7 

14,890 

00 

Jan. 

31 
31 

G.B. 
J 

2 
4 

8,050 
2,825 

00 
00 

You  are  directed  to  notice,  please,  five  statements  regarding  thisj 
Accounts  Receivable  accoimt. 


198 


BOOKKEEPING  AND  ACCOUNTING 


(a)  The  balance  is  $4,015.00,  corresponding  to  the  sum  of  all  the 
balances  in  the  Customers'  Schedule. 

(6)  The  debit,  $14,890.00,  is  evidently  taken  from  page  7  of  the 
Sales  Book. 

(c)  The  credit  of  $8,050.00  came  from  page  2  of  the  Cash  Book, 
while  the  other  credit  of  $2,825.00  was  posted  from  page  4  of  the 
Journal.  You  might  also  notice  that  this  summary  account  is  debited 
from  exactly  the  same  som*ce  from  which  the  individual  accounts  are 
debited,  and  credited  in  a  corresponding  manner. 

(d)  The  monthly  total  from  the  Sales  Book  could  easily  be  ascer- 
tained and  could  easily  be  posted  to  the  debit  side  of  this  Accounts 
Receivable  account.  It  will  soon  be  shown  that  the  other  totals  are 
obtained  just  as  easily. 

(e)  The  account  appears  in  the  General  Ledger,  of  course. 

The  following  illustration  clearly  indicates  what  modification  of  the 
Cash  Book  is  necessary  in  order  to  make  available  information  as  to 
the  total  amount  to  be  canceled  in  customers'  accounts  as  a  result  of 
receipts  from  them  during  the  current  month: 

Cash  Receipts 


19— 

L.  F. 

Account  to  be 
Credited. 

Explanation. 

Accounts 
Receiv- 
able. 

Dis- 
count 
on  Sales. 

General. 

Jan. 

2 

3 

Frank  Johnson 

Investment 

15,000 

00 

5 

8 

Notes  Payable 

Dis.  my  60-day  note 

7,000 

00 

10 

5 

John  Smith 

On  acct. 

600 

00 

600 

00 

11 

V 

T.  Taylor 

Cash  Sales 

250 

00 

15 

2 

Fount  &  Co. 

Inv.  1/8,  less  2% 

1,250 

00 

25 

00 

1,225 

00 

17 

9 

Notes  Rec. 

Dis.  Smith's  note  1/14 

500 

00 

18 

V 

Brant  &  Tate 

Cash  Sale 

200 

00 

21 

4 

H.  Jackson 

On  acct. 

1,200 

00 

1,200 

00 

25 

2 

Fount  &  Co, 

Inv.  1/15,  less  2% 

5,000 

00 

100 

00 

4.900 

00 

31 

9 
10 
14 

2 

Notes  Rec. 
Accts.  Rec,  Cr. 
Dis.  on  Sales,  Dr. 
Cash,  Dr., 

F.  &  C.  note  1/28 

Total 

Total 

Total  Receipts 

00 

2.500 

00 

8,050 

00 

125 

33.375 

00 

Comments. — (a)  John  Smith,  who  paid  us  on  January  10,  was 
allowed  no  discount,  so  we  entered  $600.00  into  both  the  Accounts  Re- 
ceivable and  the  General  columns. 

(6)  To  show  that  on  the  15th  of  January,  Fount  &  Co.  paid  ua 


ADVANCED  BOOKKEEPING  199 

$1,225.00  to  cancel  a  debt  of  $1,250.00,  note  how  the  transaction  was 
recorded. 

(c)  The  pa5Tnent  received  from  H.  Jackson  is  similar  to  the  Smith 
transaction,  while  both  Fount  &  Co.  transactions  are  similar  to  each 
other. 

(d)  Observe  that  the  actual  amount  of  cash  received  is  entered  into 
the  third  money  column. 

(e)  Corresponding  to  the  transaction  of  January  15,  we  might  have 
the  following  Journal  entry : 

Cash  $1,225.00 

Dis.  on  Sales  25.00 

Fount  &  Co.  $1,250.00 

Thus,  the  posting  from  this  new  Cash  Book  is  clearly  indicated. 
Fount  &  Co.  is  to  be  credited  for  the  full  amount  canceled.  Discount 
on  Sales  debited  for  the  allowance,  and  Cash  debited  for  the  net  amount. 

(/)  Instead  of  individual  postings,  we  now  have  summary  or  total 
postings.  Hence,  Discount  on  Sales  is  to  be  charged  for  the  total  of 
its  column,  and  Accounts  Receivable,  in  the  General  Ledger,  credited 
for  the  total  of  the  first  column.  Corresponding  to  this  total  credit 
to  Accounts  Receivable,  the  individual  customers  are  credited  in  their 
respective  accounts  in  the  Sales  or  Customers'  Ledger. 

In  order  to  obtain  the  total  credit  to  the  Accounts  Receivable 
account  as  a  result  of  Journal  entries,  the  formal  Journal  will  have  to 
be  modified  somewhat.    The  illustration  on  page  200  makes  this  clear. 

Comments. — (a)  The  rulings  of  the  Journal  shown  are,  obviously 
enough,  different  from  the  rulings  to  which  the  student  has  become 
accustomed.  But  there  will  be  no  greater  difficulty  in  comprehending 
this  form  than  there  was  in  understanding  the  special  sales  books  and 
cash  books  previously  introduced. 

(6)  This  Journal  consists,  essentially,  of  the  original  two  money 
columns,  now  separated  from  each  other,  and  the  addition  of  a  second 
credit  column.  The  items  which  appear  in  the  first  money  column 
are  those  which  would  appear  in  the  debit  column  of  the  ordinary 
Joiu-nal. 

(c)  In  the  General  coliunn  on  the  credit  side  appear  those  items 
which  would  appear  in  the  credit  column  of  the  ordinary  Journal, 
except  those  which  represent  credits  to  customers.  These  are  taken 
out  and  segregated  in  the  second  money  column,  here  labeled  ''Accounts 
Receivable  "  column.     The  sum  of  the  items  in  the  two  credit  columns 


200 


BOOKKEEPING  AND  ACCOUNTING 

Journal,  Jan.  19 — 


General. 

L.  F. 

L.F. 

General. 

Accounts 
Receiv- 
able. 

9 

75 

00 

6 

Sales 

John  Smith 
Ret.  75  yd.  No.  34  Ribbon  $1 .  00 

15 

75 

00 

250 

00 

9 

15 
Notes  Rec. 

John  Smith 
His  30-day  note  on  acct.  dated 
12/14 

15 

250 

00 

80 

00 

19 

20 

Jasper  King 

Purchases 
Ret.  200  yd.  No.  50  Ribbon  40c. 

20 

80 

00 

1,900 

00 

9 

28 
Notes  Rec. 

Fount  &  Co. 
Their  30-day  note  on  acct. 

2 

1,900 

00 

300 

00 

19 

30 

Jasper  King 

Notes  Pay. 
My  30-day  note  on  acct. 

8 

300 

00 

600 

00 

9 

31 
Notes  Rec. 

T.  Taylor 
His  30-day  note  on  acct. 

4 

600 

00 

2,700 

00 

21 

31 

Robson  Mills 

Notes  Pay. 
My  1-mo.  note  on  acct. 

31 
Accts.  Receivable,  Cr.,  Total 

8 
8 

2,700 

2,825 

00 
00 

2,825 

00 

5,905 

00 

5,905 

00 

ADVANCED  BOOKKEEPING  201 

is  exactly  equal,  of  course,  to  the  sum  of  all  the  items  in  the  single 
debit  column. 

(d)  The  separation  of  the  Accounts  Receivable  column  items 
enables  the  bookkeeper  to  ascertain  the  total  credit  to  the  accounts  of 
all  customers  combined.  The  total  of  this  colimm  can  then  be  posted 
to  the  summary  Accounts  Receivable  account. 

(e)  We  are  now  in  a  position  to  see  how  we  were  enabled  to  post 
from  the  Cash  Book  and  from  the  Journal  to  the  credit  side  of  the 
Accounts  Receivable  account  shown  on  page  197.  This  General  Ledger 
account  is  called  a  siunmary  account,  because  it  summarizes  the  many 
individual  accounts  which  appear  in  the  Subsidiary  or  Auxiliary  Ledger, 
the  Sales  Ledger.  For  the  same  reason,  it  is  also  called  a  ControUing 
account. 

(/)  For  the  present,  it  is  sufficient  that  we  regard  the  Controlling 
account  as  a  convenient  means  of  summarizing  the  details  of  the  Sub- 
sidiary Ledger.  In  our  more  advanced  studies,  we  shall  undoubtedly 
learn  of  other  uses  of  such  controlUng  accounts. 

Questions 

1.  What  function  is  served  by  the  Accounts  Receivable  account  in  the 
General  Ledger? 

2.  How  is  it  that  the  Ledger  is  "  in  balance  "  despite  the  removal  of  accounts 
with  customers? 

3.  Explain  how  it  is  that  the  keeping  of  two  Ledgers  does  not  involve  more 
work  than  the  keeping  of  a  single  Ledger. 

4.  Tell  how  to  post  to  the  General  Ledger  and  to  the  Customers*  Ledger 
from  the  Cash  Book  and  from  the  Sales  Book. 

5.  Prove  that  equal  debits  and  credits  result  when  the  special  forms  intro- 
duced in  this  section  are  emploj^ed. 

6.  Does  your  proof  hold  in  view  of  the  fact  that  you  post  from  the  credit 
side  of  the  Cash  Book  to  the  debit  side  of  individual  customer's  accounts  in 
the  Sales  Ledger  and  to  the  debit  side  of  Accounts  Receivable  account  in  the 
General  Ledger?    Explain  fully. 

7.  Maintain  your  argument  in  reference  to  posting  from  the  Journal. 

8.  What  is  a  controlling  account? 

Exercise  36 

1.  Employing  the  Cash  Book  and  the  Journal  introduced  in  this  section, 
record  the  cash  receipts  and  all  the  Journal  entries  resulting  from  the  transac- 
tions of  Exercise  20C,  page  135. 

2.  Close  the  Cash  Book  and  the  Journal. 

3.  Show  the  Accounts  Receivable  account  resulting  from  the  foregoing 
transactions.    The  total  sales  amounted  to  $1,000.00. 


202 


BOOKKEEPING  AND  ACCOUNTING 


37.  Accounts  Payable  Account 

Just  as  we  find  it  very  useful  to  employ  a  controlling  account  for 
the  balances  due  us  from  customers,  we  find  it  desirable  to  employ  a 
corresponding  account  to  summarize  our  obligations  to  creditors,  the 
Accounts  Payable  account.  The  Accounts  Payable  account,  hke 
the  Accounts  Receivable  account,  is  in  the  General  Ledger.  Just 
as  the  latter  account  displaced  the  individual  customers'  accounts  in 
the  General  Ledger,  so  does  Accounts  Payable  account  take  the  place  of 
the  individual  creditors'  accounts.  Finally,  to  correspond  to  the  sub- 
sidiary Sales  Ledger  containing  all  accounts  with  customers,  we  employ 
the  auxiUary  Purchase  or  Creditors'  Ledger,  for  all  accounts  with  those 
from  whom  we  buy. 

The  Accounts  Payable  account,  corresponding  to  the  Accounts 
Receivable  account  on  page  197,  might  be  as  follows: 

Accounts  Payable 


19— 
Jan. 


19— 

31 

C.B. 
J 

10 
2 

17,300 
925 

00 
00 

Jan. 

31 

P.B. 

4 

22,995 

GO 


Note  that:  (1)  the  credit  of  $22,995.00  represents  the  total  pur- 
chases for  the  month  of  January,  as  shown  on  page  4  of  the  Purchase 
Book;  (2)  a  cancellation  of  $17,300.00  by  means  of  cash  payments; 
(3)  a  further  reduction  of  $925.00  from  the  Journal  probably  due  to 
return  by  us  and  the  issuing  of  our  promissory  notes;  (4)  that  we  still 
owe  our  creditors  $4,770.00. 

The  individual  accounts  corresponding  to  the  controlling  account, 
which  are  now  in  the  Purchase  Ledger,  are  as  follows: 

Trombone  &  Larkins $2,000.00 

Samuel  Blaine  &  Co 655.00 

Roger  Caine 1,200.00 

N.  Y.  Produce  Co 915.00 

$4,770.00 

You  should  not  be  surprised  to  find  the  total  of  all  the  balances 
in  the  Purchase  Ledger  exactly  equal  to  the  balance  of  the  single  account 
in  the  General  Ledger,  which  sununarizes  or  controls  them,  the  Accounts 
Payable  account. 

Hereafter,  when  we  speak  of  a  Trial  Balance,  we  shall  mean  a  list 
of  all  the  balances  of  the  General  Ledger.    The  individual  accounts 


ADVANCED  BOOKKEEPING 


203 


with  customers  and  creditors  will  no  longer  be  included,  their  places 
in  the  Trial  Balance  being  taken  by  Accounts  Receivable  and  Accounts 
Payable,  respectively.  It  will  also  be  necessary  to  prepare  two  schedules 
to  supplement  this  Trial  Balance: 

(a)  A  schedule  of  Accounts  Receivable,  taken  from  the  Sales  Ledger, 
arranged  like  the  Hst  shown  on  page  196,  the  total  of  which  must  be 
equal  to  the  balance  of  the  Accounts  Receivable  account  of  the 
Trial  Balance. 

(6)  A  schedule  of  Accoimts  Payable,  taken  from  the  Purchase 
Ledger,  arranged  like  the  Ust  shown  on  page  202,  the  total  of  which 
must  be  equal  to  the  balance  of  Accounts  Payable  account  of  the  Trial 
Balance. 

It  is  now  necessary  to  show  what  modifications  must  be  made  in 
the  form  of  the  Cash  Book  and  of  the  Journal  so  as  to  furnish  us  with 
the  postings  for  the  controlling  account. 

The  credit  side  of  the  Cash  Book  is  as  follows: 


Cash  Disbursements 

Dis- 

1&— 

L.F. 

Account  to  be 
Debited. 

Explanation. 

Accounts 
Payable. 

count 
on 
Pur- 

General. 

chases. 

Jan. 

2 
4 

4 
4 

7 

Expense 
Expense 

Furniture  &  Fixtures 

Rent 
Printing  and 

Stationery 
Safe  and  office 

fixtures 

150 

53 

320 

00 
75 
00 

7 

11 
4 

Trombone  &  Larkins 
Expense 

Inv.  1/2,  less  2% 
Salaries 

3,000 

00 

60 

00 

2,940 
80 

00 
00 

10 

13 

Samuel  Blaine  &  Co. 

On  acct. 

5,000 

00 

5,000 

00 

14 

4 

Expense 

Salaries 

80 

00 

18 

10 

Roger  Caine 

Inv.  1/11,  less  2% 

1,850 

00 

37 

00 

1,813 

00 

19 

8 

N.  Y.  Produce  Co. 

Inv.  1/12,  less  2% 

1,200 

00 

24 

00 

1,176 

00 

21 

4 

Expense 

Salaries 

95 

00 

23 

8 

N.  Y.  Produce  Co. 

Inv.  1/13,  less  2% 

650 

00 

13 

00 

637 

00 

27 

13 

Samuel  Blaine  &  Co. 

Inv.  1/18,  less  2% 

3.100 

00 

62 

00 

3,038 

00 

28 

4 

Expense 

Salaries 

95 

00 

30 
31 

11 
3 
5 
2 

Trombone  &  Larkins 
Accounts,  Payable,  Dr. 
Dis.  on  Purchases,  Cr. 
Cash,  Cr. 

On  acct. 

Total 

Total 

Total  disburse- 

2,600 

00 

196 

00 

2,500 

00 

17,300 

00 

ments 

17,977 

75 

Balance* 

15,397 

25 

33.375 

00 

— 

204  BOOKKEEPING  AND  ACCOUNTING 

Comments. — (a)  On  January  10,  we  paid  Samuel  Blaine  &  Co., 
and  on  January  30,  Trombone  &  Larkins,  without  deducting  discounts. 
Note  that  the  amounts  paid  appear  in  the  first  and  third  columns. 

(6)  All  the  other  payments  to  creditors  resulted  in  a  gain  to  us  as 
is  shown  by  the  fact  that  the  amounts  extended  into  the  General  column 
are  less  than  the  respective  debts  canceled  as  shown  by  the  Accounts 
Payable  column. 

(c)  The  total  disbursement  of  cash  appears  only  in  the  General 
colimm.  The  student  must  be  cautioned,  however,  or  else  he  may  be 
led  to  beUeve  that  this  arrangement  is  universal.  It  is  true  of  the 
form  shown,  but  may  differ  in  other  cases. 

(d)  The  total  of  the  Discount  on  Purchases  colmnn  must  be  posted 
to  the  credit  side  of  its  account,  because  it  is  a  gain  to  the  business, 
and  the  student  knows  that  all  gains  appear  on  the  credit  side  of  accounts. 
The  posting  to  the  credit  side  is  also  disclosed  when  we  analyze  any 
single  transaction.     For  example,  the  item  of  the  18th: 

Roger  Caine  (Accts.  Pay.)  $1,850.00 

Cash  1,813.00 

Discount  on  Purchases  37 .  00 

The  same  fact  is  revealed  by  each  of  the  other  similar  transactions 
and  hence  the  procedure. 

(e)  It  is  evident  that  the  total  of  the  Accounts  Payable  column 
must  be  charged  to  the  controlling  account  in  the  General  Ledger, 
while  the  individual  items  are  charged  to  the  separate  accounts  in  the 
Purchase  Ledger. 

We  saw  how  the  Journal  was  modified  to  provide  a  ready  means 
of  posting  totals  to  Accounts  Receivable  account.  By  adding  another 
colmnn  to  the  debit  side,  a  similar  provision  is  made  for  Accounts 
Payable.     The  form  on  page  205  will  be  easily  understood. 

Comments. — (a)  A  reference  to  the  comments  applicable  to  the 
simpler  Journal  illustrated  on  page  200  will  help  you  to  understand 
the  more  practical  form  shown  on  page  205. 

(6)  Note  that  only  returns  to  us  and  by  us,  and  notes  issued  and 
received  by  us,  appear  in  the  Journal.  Even  some  of  these  items  are 
excluded  when  additional  special  books  are  employed.  The  principle 
involved  is  this:  if  the  number  of  transactions  warrant  it,  some  special 
form  of  original  entry  book  or  Journal  should  be  introduced.  Thus, 
in  many  cases,  only  original  investments  of  the  proprietor  and  sub- 
sequent special  or  final  adjustments  are  entered  in  the  Journal. 

(c)  Observe  that  corresponding  to  the  credits  to  Notes  Payable 


ADVANCED  BOOKKEEPING 
Journal,  Jan.,  19 — 


205 


Accounts 
Payable 


60 


00 


600 


65 


300 


925 


00 


00 


00 


00 


General 


75 


00 


250 


925 


1,250 


00 


L.F. 


21 


21 


22 


23 


9 

Sales 

John  Smith 
Retd.  75  yds.  No.  34 
ribbon  $1.00 

10 
Alan  Thompson 
Purchases 

Ret.  75  yds.  No.  32 
ribbon  80c. 

15 

Notes  Rec. 

John  Smith 
His  30-day  note  on 
acct.  dated  1/14 

16 
Alan  Thompson 
Notes  Pay. 
My  30-day  note  on  acct. 

18 
Frank  Brown 
Purchases 

Ret.  100  yds.  No  68 
ribbon  65c 

19 
H.  M.  Loran  &  Co. 
Notes  Pay. 

My  3p-day  note  on  acct. 

31 
Accts.  Rec,  Cr.,  Total 
Accts.  Pay.  Dr.,  Total 


L.F. 


15 


15 


10 


10 


General. 


60 


00 


500 


65 


300 


325 


1,250 


00 


00 


00 


00 


00 


Accounts 
Receiv- 
able. 


75 


250 


325 


00 


00 


00 


account  of  $500.00  and  $350.00,  respectively,  Accounts  Payable  accoimt 
was  charged.  Also,  the  Accounts  Payable  account  was  debited  for 
$60.00  and  $65.00,  respectively,  to  offset  the  credits  of  the  same  amounts 
to  Pxu-chases  account. 


206  BOOKKEEPING  AND  ACCOUNTING 

(d)  As  previously  explained,  the  General  columns  on  both  the  debit 
and  the  credit  sides  are  reserved  for  items  which  are  posted  to  individual 
accounts  in  the  General  Ledger. 

(e)  While  Accounts  Payable  account  is  debited  for  the  sum  of  all 
the  items  appearing  in  its  columns,  the  individual  accounts  in  the 
Purchase  Ledger  are  charged  for  the  specific  items  chargeable  against 
the  individual  creditor.  This  procedure  corresponds  to  the  entries 
posted  to  Accounts  Receivable  account  and  the  separate  customers' 
accounts  in  the  Sales  Ledger. 

(/)  Finally,  it  should  be  clear  that,  just  as  in  the  case  of  Accounts 
Receivable,  the  addition  of  extra  columns  in  the  Cash  Book  and  in 
the  Journal  makes  possible  the  keeping  of  an  Accounts  Payable  account 
in  the  General  Ledger,  without  the  burden  of  any  appreciable  extra 
work. 

Questions 

1.  What  function  is  served  by  the  Accounts  Payable  account  in  the  General 
Ledger? 

2.  Justify  the  use  of  the  term  "  controlling  or  summary  account  "  as  applied 
to  the  Accounts  Receivable  account  and  to  the  Accounts  Payable  account. 

3.  Does  the  employment  of  Accounts  Payable  account  involve  any  more 
work  than  would  be  required  if  it  were  not  used?    Explain  fully. 

4.  How  is  it  that  the  Trial  Balance  will  "  prove  "  despite  the  absence  of 
accounts  with  creditors? 

5.  Explain  the  relationship  between  the  General  Ledger  and  the  subsidiary 
or  auxiliary  Ledgers. 

6.  Tell  how  to  post  to  the  General  Ledger  and  to  the  Purchase  Ledger  from 
the  Cash  Book  and  from  the  Purchase  Book. 

7.  Prove  that  equal  debits  and  credits  result  from  posting  the  items  which 
are  shown  in  the  Cash  Book,  page  203. 

Exercise  37A 

1.  Employing  the  special  forms  of  Cash  Book,  Journal,  Sales  Book  and 
Purchase  Book,  write  up  or  enter  the  transactions  of  Exercise  202),  page  147. 

2.  Close  the  books  of  original  entry  and  post  to  the  General  Ledger,  the 
Sales  Ledger  and  the  Purchase  Ledger. 

3.  Take  a  Trial  Balance  and  prepare  schedules  of  Accounts  Receivable  and 
of  Accounts  Payable. 

Exercise  STB 

1.  Employing  the  special  forms  of  Cash  Book,  Journal,  Sales  Book  and 
Purchase  Book,  write  up  or  enter  the  transactions  of  Exercise  26Z>,  page  149. 


ADVANCED  BOOKKEEPING 


207 


2.  Close  the  books  of  original  entry  and  post  to  the  General  Ledger,  the 
Sales  Ledger  and  the  Purchase  Ledger. 

3.  Take  a  Trial  Balance  and  prepare  schedules  of  Accounts  Receivable  and 
of  Accounts  Payable. 


38.  The  Balance  Sheet 

The  reader  has  already  become  familiar  with  the  method  of  deter- 
mining the  condition  of  the  business  at  the  end  of  any  given  period. 
He  learned  that  the  so-called  Statement  of  Assets  and  Liabilities  was 
a  formal  means  employed  for  the  purpose  of  obtaining  the  net  capital 
of  an  organization.  He  may  recall  that  this  statement  is  sometimes 
referred  to  as  the  Statement  of  Resources  and  Liabilities.  It  is  also 
sometimes  called  a  "  Statement  of  Affairs  "  or  a  "  Statement  of  Con- 
dition," though  accountants  restrict  the  last  two  terms  to  special  cases 
with  which  we  need  not  now  concern  ourselves. 

The  "  Balance  Sheet "  is  the  technical  term  employed  by  many 
practitioners  for  the  exhibit  which  to  all  intents  and  purposes  is  iden- 
tical with  the  *'  Statement  of  Assets  and  Liabilities.'^  If  there  is  any 
difference  between  the  two  statements  the  student  will  be  unable  to 
ascertain  the  fact  as  is  evident  from  the  following  illustrations: 

1.  Statement  of  Assets  and  Liabilities. 


"T^t^ut/ s^^»^>^^   /r<po.^^ 


-^yj^/  <:yo-  ^f 


^^cT/^^.  ^O 


2.  Balance  Sheet. 


k3  <?  0.  ^^ 


^^J'/  c?d>.^0 


208  BOOKKEEPING  AND  ACCOUNTING 

The  student  will  readily  conclude  that  there  is  no  apparent  difference 
between  the  Statement  of  Assets  and  Liabilities  and  the  Balance  Sheet. 
If  this  is  so,  why  the  present  discussion?  Because  there  is  a  technical 
distinction  between  the  two.  Whereas  the  Statement  of  Assets  and 
Liabilities  may  be  prepared  from  any  set  of  books,  or,  for  that  matter, 
from  no  books  at  all,  provided  the  constituent  items  may  be  learned 
or  ascertained,  the  Balance  Sheet  is  regarded  as  the  result  of  properly 
arranging  the  balances  found  in  a  double  entry  Ledger  after  "closing 
the  books."  Let  us  assume  that  after  setting  up  all  accruals  and 
inventories  and  after  transferring  all  the  accounts  which  show  losses 
or  gains  to  the  Profit  and  Loss  account  and  after  transferring  the 
balance  of  the  Profit  and  Loss  account  to  the  Proprietor's  account, 
the  following  balances  still  remain: 


Dr. 

Cr. 

Thomas  Smith,  Capital 

$6,850.00 

Mdse.  Inventory 

2,600.00 

Cash 

1,875.00 

Accts.  Receivable 

4,064.00 

Notes  Receivable 

1,000.00 

Furniture  and  Fixtures 

2,375.00 

Expense  Inventory 

108.00 

Accts.  Payable 

2,672.00 

Notes  Payable 

2,500.00 

$12,022.00 

$12,022.00 

Bookkeepers  obtain  a  list  of  the  balances  similar  to  the  above, 
after  closing  the  books,  for  the  purpose  of  assuring  themselves,  when 
their  task  is  completed,  that  the  books  are  '*  in  balance."  This  list 
of  balances  is  sometimes  referred  to  as  the  "  Proof  Trial  Balance." 
After  the  items  in  this  Proof  Trial  Balance  are  arranged  in  a  systematic 
way,  they  constitute  the  so-called  Balance  Sheet. 

Practical  men  are  not  much  concerned  with  questions  of  terminology. 
They  are  indifferent  as  to  the  name  which  is  appUed  to  the  exhibit 
which  we  are  at  present  studying.  And  so,  though  it  is  better  to  use 
the  term  Balance  Sheet,  we  may  continue,  if  we  wish,  to  call  it  a  State- 
ment of  Assets  and  LiabiHties. 

The  purpose  of  the  Balance  Sheet  is  similar  to  that  of  the  State- 
ment of  Assets  and  LiabiHties.  Its  function  is  to  show  all  the  assets 
and  all  the  HabiUties  and  the  net  capital.  By  a  very  simple  expedient, 
the  items  of  a  Balance  Sheet  may  be  arranged  so  as  to  disclose  not  only 


ADVANCED  BOOKKEEPING  209 

the  net  capital  of  the  business,  but  also  to  indicate  the  "  healthfulness  " 
of  the  organization.  This  result  is  obtained  by  grouping  the  assets 
and  the  liabiHties  into  two  divisions  as  follows: 

Balance  Sheet  of  Thomas  Smith 

June  30L  19— 
Assets  Liabilities  and  Capital 

Current  Assets:  Current  Liabilities: 

Cash $1,875.00  Accounts  Pay. .  $2,672.00 

Mdse.  Inv 2,600.00  Notes  Pay 2,500.00 

Accts.  Rec 4,064.00 

Notes  Rec 1,000.00 


Total  Current  Assets $9,539 .  00  Total  Current  Liabilities    $5, 172 .  00 

Capital 6,850.00 

Other  Assets: 

Fur.  and  Fix $2,375.00 

Expense  Inv 108.00 


Total  Other  Assets 2,483 .  00 


$12,022.00  $12,022.00 


The  foregoing  illustration  serves  to  introduce  the  student  to  the 
modification  of  the  ordinary  Balance  Sheet  for  the  purpose  already 
mentioned. 

It  is  easily  seen  that,  if  we  include  merchandise  on  hand  and  assume 
that  it  is  in  a  marketable  condition,  Thomas  Smith  has  over  $9,500.00 
with  which  to  meet  current  habilities  of  about  $5,100.00.  This  test 
of  the  relationship  between  current  assets  and  current  Uabihties  is 
constantly  employed  by  credit  men  in  deciding  the  maximum  amount 
to  sell  customers  on  account  and  by  bank  officials  in  determining  how 
much  to  lend  depositors. 

For  our  present  purposes  it  is  sufficient  that  all  the  assets  on  the 
balance  sheet  be  divided  into  the  two  divisions  shown,  namely  Current 
Assets  and  Other  Assets.  It  is  hardly  necessary  to  label  liabilities 
correspondingly,  but  it  is  good  practice  to  begin  to  do  so  now  even  though 
other  Habilities  are  as  yet  not  employed  by  us.  Among  Current 
Assets,  Cash  should  be  Usted  first  and  the  items  under  the  same  caption 
in  the  order  of  what  has  been  called  their  Hquidity,  that  is,  the  time 
required  to  convert  them  into  cash  under  usual  circumstances.  Thus, 
merchandise  could  be  sold  for  cash;    Accounts  Receivable  could  be 


210  BOOKKEEPING  AND  ACCOUNTING 

collected  by  offering  larger  cash  discounts,  while  Notes  Receivable, 
with  fixed  maturities,  would  probably  not  be  collected  until  due. 

It  is  well  to  caution  the  student  against  accepting  the  divisions 
here  shown,  or  the  order  herein  described,  as  universal.  Many  prac- 
titioners employ  other  divisions  and  other  orders,  but  the  description 
above  will  suffice  for  present  purposes. 


Questions 

1.  What  is  a  Balance  Sheet? 

2.  Distinguish  between  a  Balance  Sheet  and  a  Statement  of  Assets  and 
Liabilities. 

3.  Why  is  it  important  to  separate  assets  into  Current  Assets  and  Other 


4.  What  is  the  relationship  between  a  Proof  Trial  Balance  and  a  Balance 
Sheet? 

5.  Which  asset  is  ordinarily  more  liquid  or  current,  merchandise  or  an 
account  receivable?    Why? 

Exercise  38A 

Prepare  a  Balance  Sheet  corresponding  to  the  Statement  of  Assets  and 
Liabilities  shown  on  page  54. 

Exercise  38B 

Prepare  a  Balance  Sheet  based  upon  the  Trial  Balance  of  Exercise  14^1, 
page  49,  Problem  1.    Inventories:   Mdse.  $1,100.00;  Expense  $75.00. 

Exercise  38C 

Prepare  a  Balance  Sheet  based  upon  the  Trial  Balance  of  Exercise  24 A, 
pages  98,  99,  Problems  5  and  6. 

Exercise  38D 

Prepare  a  Balance  Sheet  based  upon  the  Trial  Balance  of  Special  Exercise 
No.  1,  page  151. 

Exercise  38E 

Prepare  a  Balance  Sheet  based  upon  the  Trial  Balance  of  Special  Exercise 
No,  2,  page  151. 


ADVANCED  BOOKKEEPING  211 


39.  Income  and  Profit  and  Loss  Statement 

We  have  already  seen  that  the  Profit  and  Loss  Statement  enables 
the  bookkeeper  to  ascertain  the  net  profit  or  the  net  loss  of  the  business. 
We  have  also  seen  that  this  information  should  be  incorporated  in  the 
books  by  opening  a  Loss  and  Gain  account  in  the  Ledger  through  the 
process  known  as  "  closing  the  books."  We  are  now  ready  to  learn 
how  to  prepare  a  more  popular  form  of  the  Profit  and  Loss  Statement, 
the  so-called  Income  Statement  or  Profit  and  Loss  and  Income  State- 
ment. The  difference  between  the  Profit  and  Loss  statement  which 
the  student  has  already  prepared,  and  the  new  statement  about  to 
be  introduced,  will  be  made  clear  by  the  following  illustrations: 

Profit  &  Loss  Statement 

of 

Thomas  Smith  for  the  year  ended  December  31,  19 — 

Inventory  on  hand  at  beginning  of  the  year      $1,000.00 
Net  purchases  during  the  year  7,500 .  00 


8,500.00 

Less  present  inventory 

2,600.00 

Cost  of  Merchandise  sold 

5,900.00 

Net  sales 

$10,200.00 

*  Profit  on  sales,  carried  down 

4,300.00 

$10,200.00 

$10,200.00 

Profit  on  sales,  brought  down 

4,300.00 

Selling  expenses 

435.00 

Discount  on  sales 

65.00 

Discount 

212.00 

General  expenses 

380.00 

Salaries 

2,200.00 

Discount  on  purchases 

140.00 

*  Net  Profit 

1,148.00 
$4,440.00 

$4,440.00 

212  BOOKKEEPING  AND  ACCOUNTING 

Profit  and  Loss  and  Income  Statement 

of 

Thomas  Smith  for  the  Year  Ended  December  31,  19 — 

Income: 

Net  Sales  $10,200.00 

Less  Discount  on  Sales  65 .  00 


Net  Income  from  Sales  $10,135 .  00 

Less  Cost  of  Merchandise  consumed: 

Original  Inventory  $1,000 .  00 

Purchases  during  year  7,500 .  00 

8,500.00 
Less  Present  Inventory  2,600 .  00 

Cost  of  Merchandise  sold  5,900 .  00 

4,235.00 

Less  Selling  and  Administrative  Expenses: 

SeUing  Expenses  $435 .  00 

General  Expenses  380 .  00 

Salaries  2,200.00 

Total  SeUing  and  Administrative  Expenses         3,015 .  00 

Gross  Profit  1,220.00 

Other  Deductions: 

Discount  $212.00 

Less  Discount  on  Purchases      140 .  00 


Other  Deductions  72 .  00 


Net  Income  $1,148.00 


Comments. — (1)  It  should  be  noted  first  of  all  that  the  Net  Profit 
obtained  by  means  of  the  Statement  of  Profit  and  Loss  is  exactly  the 
same  as  the  Net  Income  shown  in  the  Profit  and  Loss  and  Income  State- 
ment. 

(2)  The  difference  is  one  of  form  only  and  the  student  is  advised 
to  famiharize  himself  with  the  second  of  the  two  forms.  The  principal 
argument  in  its  favor  is  that  it  is  more  readily  understood  by  the  busi- 
ness man  not  trained  in  bookkeeping. 

(3)  Note  that  in  the  second  form,  discount  on  sales  is  deducted 
from  sales  so  as  to  give  "  net  income  from  sales."  Symmetry  would 
require  that  discount  on  purchases  should  be  deducted  from  purchases, 
and  indeed,  some  accountants  show  discount  on  purchases  in  exactly 


ADVANCED  BOOKKEEPING  213 

this  way.  Many  practitioners,  however,  include  the  discount  on  piu*- 
chases  in  the  manner  shown  in  the  Statement  of  Income  and  Profit  and 
Loss  on  certain  economic  grounds  which  are  discussed  in  advanced 
works.  In  the  meantime,  the  student  is  advised  to  accept  the  form 
herein  shown  as  correct,  and  to  follow  the  model  in  his  own  practice. 
The  distinction  between  trade  discounts  and  cash  discounts,  appro- 
priate in  this  connection,  should  be  reserved  for  advanced  study. 

(4)  An  important  point  to  be  made  in  this  connection  is  that  the 
form  of  the  statement  is  hardly  as  essential  as  is  the  correct  deter- 
mination of  the  amount  of  the  net  profit. 

(5)  The  form  of  the  Income  Statement  is  not  fixed.  In  the  main, 
it  depends  upon  the  purpose  for  which  it  is  prepared.  Accoimting 
texts  should  be  consulted  for  illustrations  of  other  forms. 

Questions 

1.  Point  out  the  essential  differences  between  the  Profit  and  Loss  Statement 
and  the  Income  and  Profit  and  Loss  Statement. 

2.  Which  do  you  prefer?    Why? 

3.  Where  is  the  discount  on  sales  shown? 

4.  Where  is  the  discount  on  purchases  shown? 

6.  What  is  the  difference  between  Net  Income  and  Net  Profit? 

Exercise  39A 

Prepare  an  Income  and  Profit  and  Loss  Statement  corresponding  to  the 
Profit  and  Loss  Statement  shown  on  page  51. 

Exercise  39B 

Prepare  an  Income  and  Profit  and  Loss  Statement  based  upon  the  Trial 
Balance  of  Exercise  14A,  page  49.    For  inventories  see  Exercise  S8B. 

Exercise  39C 

Prepare  an  Income  and  Profit  and  Loss  Statement  based  upon  the  Trial 
Balance  of  Exercise  24A,  pages  98,  99,  Problems  5  and  6. 

Exercise  39D 

Prepare  an  Income  and  Profit  and  Loss  Statement  based  upon  the  Trial 
Balance  of  Special  Exercise  No.  1,  page  151. 

Exercise  39E 

Prepare  an  Income  and  Profit  and  Loss  Statement  based  upon  the  Trial 
Balance  of  Special  Exercise  No.  2,  page  151. 


214 


BOOKKEEPING  AND  ACCOUNTING 


40.  ELEMENTARY  COST  STATISTICS 

The  Profit  and  Loss  Statement,  the  Loss  and  Gain  account,  and 
the  Income  and  Profit  and  Loss  Statement,  all  result  in  the  net  profit 
or  the  net  loss.     Modern  business  men  wish  to  know  not  only  how 

Income  and  Profit  and  Loss  Statement 

of 

Thomas  Smith  for  the  Year  Ended  June  30,  19 — 


Income : 

Net  Sales 

Less  Discount  on  Sales 

Net  Income  from  Sales 

Less  Cost  of  Merchandise  consumed: 

Original  Inventory  1,000 .  00 

Purchases  during  year  7,500 .  00 


Less  Present  Inventory 

Cost  of  merchandise  sold 


8,500.00 
2,600.00 


Less  Selling  and  Administrative  Expenses: 
Selling  Expenses  435.00 

General  Expenses  380.00 

Salaries  2,200.00 

Total  Selling  and  Administrative 
Expenses 

Gross  Profit 
Other  Deductions: 

Discount  $212.00 

Less  Discount  on  Purchases     140 .  00 


Other  Deductions 
Net  Income 


$10,200.00 
65.00 

$10,135.00 


5,900.00 
4,235.00 


3,015.00 
1,220.00 


72.00 
$1,148.00 


100% 


58.2% 


29.7% 


1% 


11% 


much  they  made  during  the  year,  but  they  want  this  information  in 
such  form  as  to  enable  easy  comparisons  over  periods  of  time.  Thus, 
they  Hke  to  know  how  much  it  costs  them  to  sell  one  dollar's  .worth 


ADVANCED  BOOKKEEPING  216 

of  goods;  how  much  of  general  expenses  is  incurred  in  order  to 
sell  one  dollar's  worth  of  goods;  and  other  similar  items.  One  of 
the  best  devices  for  presenting  just  such  information  as  this  is  by 
tabulating  the  per  cents  of  the  various  expenses  on  the  basis  of  sales. 
For  example,  if  salaries  amount  to  $3,000.00  and  total  sales  are 
$75,000.00,  then,  3,000  divided  by  75,000  gives  4%.  By  securing  such 
percentage  for  the  more  important  items  which  enter  into  the  con- 
struction of  any  Income  and  Profit  and  Loss  Statement,  the  business 
man  is  enabled  to  test  the  relative  efficiency  of  one  year's  operations 
in  terms  of  previous  experiences.  The  Income  and  Profit  and  Loss 
Statement  amended  by  the  addition  of  such  cost  statistics  or  per- 
centage figures  is  shown  on  page  214. 

Comments. — (1)  Observe  that  the  statement  is  exactly  the  same 
as  that  shown  on  page  212,  save  for  the  addition  of  the  percent- 
ages. 

(2)  By  comparing  the  percentages  obtained  this  year  with  similar 
ones  obtained  during  previous  years,  this  year's  efficiency  in  organi- 
zation and  management  can  readily  be  tested. 

(3)  Instead  of  employing  the  *'  Cost  of  Merchandise  Sold  "  as  a 
base,  it  is  the  almost  invariable  custom  of  merchants  to  employ  "  Net 
Sales  "  or  "  Net  Income  from  Sales  "  as  the  divisor  or  base. 

(4)  The  total  of  the  cost  percentages  and  the  Net  Income  per  cent 
should  equal  100%,  but  if  there  is  any  discrepancy,  it  is  due  to  the 
dropping  of  fractions. 

(5)  The  percentages  herein  included  are  not  the  only  ones  obtain- 
able. The  selection  of  items  for  which  to  compute  percentages  is  a 
matter  of  choice.  ' 


Questions 

1.  How  does  the  Income  Statement  shown  on  page  212  differ  from  the  one 
on  page  214? 

2.  Which  do  you  consider  more  useful?    Why? 

3.  Why  does  a  business  man  want  to  know  how  much  it  costs  him  to  sell  a 
dollar's  worth  of  goods? 

4.  In  19 — ,  the  cost  of  merchandise  sold  by  a  certain  concern  represented 
56%  of  the  net  income  from  sales.  A  year  later  the  corresponding  per  cent 
was  59|.    Try  to  account  for  the  increase. 

5.  How  was  58.2%  obtained?     (Page  214.) 

6.  How  was  11%  obtained?    How  else  might  it  be  obtained? 


m  BOOKKEEPING  AND  ACCOUNTING 


Exercise  40A 

1.  A  merchant  bought  goods  which  cost  him  75c.  He  sold  them  at  $1.00. 
What  per  cent  did  he  make  on  his  cost?    On  his  sales? 

2.  The  net  income  from  sales  amounted  to  $32,000.00.  The  cost  of  sales 
was  $16,900.00,  the  administrative  and  selling  expenses  $4,500.00,  other  deduc- 
tions $2,000.00.  Find  the  per  cent  on  sales  each  figure  represents,  and  the  net 
income  per  cent. 

3.  In  Problem  2,  the  rent  was  $1,800.00,  and  the  advertising  cost  $720.00. 
Find  how  many  cents  per  dollar's  sale  was  represented  by  the  rent  and  adver- 
tising, respectively. 

4.  In  Problem  1,  Exercise  4A,  page  16,  the  rent  was  $50.00,  and  the 
advertising  cost  $35.00,  both  included  in  the  Expense  account.  Find  how 
many  cents  per  dollar's  sale  was  represented  by  the  rent  and  advertising,  re- 
spectively. 

5.  In  Problem  1,  Exercise  7A,  page  25,  the  rent  was  $100.00,  and  the 
advertising  cost  $160.00.  Find  how  many  cents  per  dollar's  sale  was  repre- 
sented by  the  rent  and  advertising,  respectively. 

6.  In  Problem  1,  Exercise  8A,  page  27,  the  rent  was  $100.00,  and  the  ad- 
vertising cost  $180.00.  Find  how  many  cents  per  dollar's  sale  was  represented 
by  the  rent  and  advertising,  respectively. 

7.  In  Problem  4,  Exercise  24 A,  page  98,  the  rent  was  $150.00  and  the 
advertising  cost  $250.00.  Find  how  many  cents  per  dollar's  sale  was  repre- 
sented by  the  rent  and  advertising,  respectively. 


Exercise  40B  ' 

Prepare  an  Income  Statement  with  percentages  corresponding  to  the  Profit 
and  Loss  Statement  shown  on  page  51. 


Exercise  40C 

Prepare  an  Income  and  Profit  and  Loss  Statement  for  Special  Exercise  No.  1, 
page  151.    Add  such  cost  statistics  as  you  deem  desirable. 


Exercise  40D 

Prepare  an  Income  and  Profit  and  Loss  Statement  for  Special  Exercise  Na 
?»  P&ge  161.    Use  such  cost  statistics  as  you  deem  desirable. 


ADVANCED  BOOKKEEPING 


217 


41.  The  Working  Sheet 

For  the  purpose  of  preparing  final  statements,  that  is,  Balance 
Sheets  and  Income  Statements,  both  based  upon  Trial  Balances, 
accountants  frequently  employ  what  is  known  as  a  Working  Sheet. 
These  are  constituted  essentially  of  multi-column  rulings  as  follows: 


Trial  Balance. 


Inventories  and 
Accruals. 


Loss  and  Gain. 


Balance  Sheet. 


Because  it  is  believed  that  the  bookkeeper  will  benefit  by  the  use 
of  such  Working  Sheets,  a  brief  account  of  them  will  be  given  here. 

The  first  two  money  columns  contain  the  Trial  Balance  figures. 
The  next  two  columns  are  reserved  for  inventories  and  for  other  items 
which  will  not  now  be  discussed.  The  next  two  columns  are  used  for 
the  purposes  of  collecting  all  Losses  and  Gains.  The  last  two  columns 
contain  the  Balance  Sheet  items.  A  Working  Sheet  based  upon  the 
Trial  Balance  of  Thomas  Smith,  from  which  the  Balance  Sheet  and 
Income  and  Profit  and  Loss  Statement  discussed  in  this  section  were 
prepared,  is  shown  on  page  218. 


Observations 

1.  Note  that  the  first  column  contains  the  ledger  folios  correspond- 
ing to  the  accounts  listed  in  the  next  column. 

2.  The  first  two  money  columns  constitute  the  Trial  Balance. 

3.  The  inventories,  suitably  explained  by  footnotes,  are  entered 
into  the  next  two  columns. 

4.  Balances  indicating  losses  and  gains  are  extended  into  the  next 
two  money  columns. 

5.  The  Balance  Sheet  items  are  extended  into  the  last  two  money 
columns.  The  net  profit,  which  is  exactly  the  amount  necessary  to 
make  the  Loss  column  equal  to  the  Gain  column,  is  exactly  equal  to 


218 


BOOKKEEPING  AND  ACCOUNTING 


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ADVANCED  BOOKKEEPING  219 

the  difference  between  the  Assets  and  the  Liabilities  when  the  liabil- 
ities include  the  net  investment.     The  following  formulae  apply: 

(a)  Assets— Liabilities  =  Net  Capital 

(b)  Net  Capital  =  Net  Investment  +  Net  Profit 

Substituting  and  transposing,  we  obtain: 

(c)  Assets = Liabilities + Net  Investment + Net  Profit. 

6.  On  the  basis  of  a  Working  Sheet  such  as  the  above,  the  book- 
keeper may  readily  prepare  his  final  statements  and  the  closing  entries. 

7.  It  is  almost  needless  to  state  that  in  actual  practice  the  Work- 
ing Sheet,  as  herein  shown,  is  often  considerably  modified. 

Questions 

1.  What  is  a  Working  Sheet? 

2.  State  the  function  of  the  first  two  money  columns. 

3.  What  is  the  relationship  between  the  Loss  and  Gain  column  of  the  Work- 
ing Sheet  and  the  Profit  and  Loss  Statement? 

4.  What  other  items  besides  liabilities  are  carried  into  the  credit  money 
column  of  the  Balance  Sheet  section? 

5.  Explain  how  it  is  that  the  difference  between  the  debit  and  credit  columns 
of  the  Loss  and  Gain  division  is  exactly  equal  to  the  difference  between  the 
debit  and  credit  columns  of  the  Balance  Sheet  division. 

Exercise  41A 

Prepare  a  Working  Sheet  on  the  basis  of  the  Trial  Balance  and  inventories 
of  Exercise  262),  pages  149-151. 

Exercise  41B 

Prepare  the  Profit  and  Loss  and  Income  Statement  and  the  Balance  Sheet 
on  the  basis  of  Exercise  41^4,  above. 

Exercise  41C 

Prepare  a  Working  Sheet  on  the  basis  of  the  Trial  Balance  and  inventories  of 
Special  Exercise   No.  1,  page  151. 

Exercise  41D 

Prepare  the  Profit  and  Loss  and  Income  Statement  and  the  Balance  Sheet 
on  the  basis  of  Exercise  41C,  above. 


220  BOOKKEEPING  AND  ACCOUNTING 


42.  SUMMARY  OF  ADVANCED  BOOKKEEPING 

Kind  of  Transactions. — We  learned  that  just  as  in  so-called  ele» 
mentary  bookkeeping,  as  well  as  in  the  so-styled  intermediate  book*- 
keeping,  advanced  bookkeeping  deals  with  the  selfsame  transactions. 
Goods  are  bought  and  sold;  payments  are  made  and  received;  notes 
are  issued  and  redeemed;  expenses  are  inciured,  losses  suffered  and 
profits  reaUzed.  The  difference  between  what  we  called  advanced 
bookkeeping  and  the  type  which  preceded  it  consists  in  the  use,  by 
the  more  advanced  work,  of  certain  labor-saving  forms  whereby  is  min- 
imized the  necessary  burden  of  recording  the  transactions  which  occur. 
In  fact,  the  basis  of  advanced  bookkeeping  is  to  be  found  in  the  endeavor 
to  perform  the  work  of  the  bookkeeper  more  expeditiously  and  easily. 

Columnar  Books. — In  order  to  facilitate  posting  to  the  Ledger, 
books  of  original  entry  may  be  modified  by  the  addition  of  such  extra 
columns  as  any  given  situation  suggests.  Thus,  posting  of  totals  rather 
than  of  individual  component  items  is  made  possible  by:  (a)  Expense 
column  on  the  credit  side  of  the  Cash  Book;  (6)  Columns  for  Discount 
on  Purchases  and  Discount  on  Notes  on  the  same  side  of  the  Cash 
Book;  (c)  Columns  for  Discount  on  Sales  and  Cash  Sales  on  the  debit 
side  of  the  Cash  Book;  (d)  Departmental  columns  in  the  Sales  Book 
and  in  the  Purchase  Book. 

Controlling  Accounts. — The  addition  of  special  colimins  in  books 
of  original  entry  makes  possible  the  keeping  of  Controlhng  Accounts. 
The  most  common  examples  of  such  accoimts  are  Accounts  Receivable 
account  and  Accounts  Payable  account.  These  summary  accounts, 
respectively,  displace  individual  customers*  and  creditors'  accounts  in 
the  Ledger.  The  customers'  accounts  are  then  segregated  in  another 
book  called  the  Sales  Ledger  or  Customers'  Ledger,  while  the  creditors' 
accounts  are  kept  in  the  Pm-chase  or  Creditors'  Ledger.  The  original 
Ledger,  now  much  reduced  in  size,  is  called  the  General  Ledger. 

The  Trial  Balance  now  refers  to  the  accounts  in  the  General  Ledger. 
It  is  evident  that  the  task  of  taking  a  Trial  Balance  is  greatly  simplified 
because  so  many  fewer  accounts  are  involved.  A  Schedule  of  Accounts 
Receivable  is  then  prepared,  consisting  of  the  balances  found  in  the 
Sales  Ledger,  and  its  total  must  agree  with  the  balance  of  the  Accounts 
Receivable  account  shown  in  the  Trial  Balance.  A  similar  Schedule  of 
Accounts  Payable,  made  up  of  all  the  balances  in  the  Piu'chase  Ledger, 
is  prepared,  and  it  must  agree  with  the  balance  of  the  Accounts  Payable 
account  of  the  General  Ledger.  " 


ADVANCED  BOOKKEEPING  221 

The  Balance  Sheet. — In  the  more  elementary  part  of  the  text, 
the  student  learned  how  to  prepare  a  Statement  of  Assets  and  Liabil- 
ities for  the  purpose  of  disclosing  the  net  capital  of  an  enterprise.  In 
the  present  chapter  he  was  shown  how  to  prepare  a  similar  statement, 
the  Balance  Sheet.  For  all  practical  purposes,  the  two  forms  are 
identical,  but  the  technical  distinction  which  was  pointed  out  disclosed 
the  fact  that  the  Balance  Sheet  was  prepared  on  the  basis  of  the  balances 
of  the  accounts  which  remained  after  a  Double  Entry  set  of  books  had 
been  closed,  while  the  Statement  of  Assets  and  Liabihties  could  be 
prepared  from  any  books  or  from  no  books.  The  function  of  the  two 
statements  is  identical;  a  Statement  of  Assets  and  Liabihties  is  drawn 
up  from  information  secured  from  books  or  from  outside  sources  or 
partly  from  books  and  partly  from  other  sources;  though  the  business 
man  frequently  calls  this  statement  a  Balance  Sheet,  the  student,  espe- 
cially at  examinations,  should  be  careful  to  restrict  the  term  "  Balance 
Sheet"  to  the  statement  based  upon  properly  closed  double  entry  books. 

The  Income  Statement. — ^At  the  time  that  tlic  Statement  of  Assets 
and  Liabihties  was  first  taught,  how  to  prepare  a  Profit  and  Loss  State- 
ment was  also  shown.  In  the  present  chapter  there  was  shown  how 
to  prepare  another  form  which  also  had  for  its  purpose  the  determination 
of  the  progress  of  business,  the  so-called  Income  and  Profit  and  Loss 
Statement  often  called  the  Income  Statement.  The  newer  form  is 
growing  in  popularity  and  it  appears  to  be  favored  by  the  business  man. 

The  Working  Sheet. — ^As  an  aid  in  the  preparation  of  final  state- 
ments, a  so-called  Working  Sheet  may  be  employed.  This  arrange- 
ment consists  of  a  Trial  Balance  sheet  to  which  extra  money  colmnns 
have  been  added.  The  additional  money  columns  are  used  in  pairs 
and  into  them  are  extended,  from  the  first  two  or  Trial  Balance  columns, 
losses  and  gains,  assets  and  habihties,  etc.  The  Working  Sheet  is 
a  valuable  aid  in  the  construction  of  the  balance  Sheet  and  the  Income 
Statement,  because  the  suitably  labeled  columns  clearly  indicate  where 
the  various  items  belong  and  the  difference  between  the  loss  and  gain 
coliunns  shows  the  net  profit  or  the  net  loss.  This  sheet  also  affords  us 
a  convenient  means  of  analyzing  items  of  the  Trial  Balance,  and  demon- 
strates the  truth  of  the  proposition  elsewhere  advanced,^  namely: 

Every  account  having  a  debit  balance  is  either 

(a)  An  asset  (cash,  or  convertible  into  cash,  something  of  value 

oumed  by  the  business),  or 
(6)  A  loss  (expense  or  cost). 

<Seepage80. 


222  BOOKKEEPING  AND  ACCOUNTING 

Every  account  having  a  credit  balance  is  either 
(a)  A  liahility  (owed  by  the  business),  or 
(h)  A  gain  (profit  or  proceeds). 

There  is  Kkewise  demonstrated  by  means  of  the  analysis,  that 
whereas  every  Trial  Balance  item  is  extended  into  either  the  Balance 
Sheet  or  the  Profit  and  Loss  division,  inventories  and  accruals,  repre- 
senting items  not  yet  in  the  books,  must  result  in  equal  debits  and 
credits,  so  as  not  to  disturb  the  equilibrium  shown  by  the  Trial  Balance, 
and  accordingly  they  affect  both  the  Balance  Sheet  and  the  Profit  and 
Loss  Statement. 

Finally,  the  proprietor's  balance,  which  from  one  point  of  view  is 
surely  no  Kability  (for  how  can  the  business  owe  itself?)  is  easily  under- 
stood when  we  recall  that  we  have  consistently  adhered  to  a  single 
point  of  view,  that  is,  we  have  been  recording  transactions  as  they 
affected  the  business.  The  business  is  liable  to  the  proprietor,  in  a 
bookkeeping  sense  if  not  in  a  legal  sense,  for  the  proprietor's  net  invest- 
ment. Hence  it  is  that  the  proprietor's  balance  is  shown  among  the 
.  liabiUties.  This  solution  is  also  derived  from  a  different  angle  by  those 
who  are  at  all  famiUar  with  algebraic  equations: 

Assets  minus  LiabiUties  equal  Proprietorship, 

(A-L  =  P). 
Transposing  we  get: 

A  =  L+P. 

Interpreting  the  last  equation,  we  readily  see  that  the  asset  column 
of  the  Working  Sheet  should  equal  the  sum  of  the  liabilities  and  the 
proprietorship  (net  investment  plus  net  profit  or  minus  net  loss),  and 
that  for  bookkeeping  purposes  the  proprietor's  balance  may  be  regarded 
as  a  Uability  in  analyzing  the  meaning  of  the  Ledger  balances,  though 
it  would  be  incorrect  to  do  so  in  preparing  the  Balance  Sheet. 

Questions 

1.  Differentiate  between  elementary,  intermediate  and  advanced  book- 
keeping. 

2.  Suggest  three  special  columns  for  the  debit  side  of  the  Cash  Book. 

3.  Suggest  three  special  columns  for  the  credit  side  of  the  Cash  Book. 

4.  Suggest  the  titles  of  the  special  columns  of  a  Sales  Book  which  would  be 
adapted  to  the  use  of  a  drug  store. 

5.  Suggest  the  special  columns  in  the  Purchase  Book  which  would,  in  your 
opinion,  answer  the  requirements  of  a  department  store. 


ADVANCED  BOOKKEEPING  223 

6.  Justify  the  use  of  the  term  "  Accounts  Receivable  *'  as  a  controlling 
account. 

7.  Explain  the  use  of  Accounts  Payable. 

8.  Differentiate  between  a  Statement  of  Assets  and  Liabilities  and  a  Balance 
Sheet. 

9.  Differentiate  between  an  Income  and  Profit  and  Loss  Statement,  and  the 
more  elementary  Profit  and  Loss  Statement  which  was  presented  in  the  chapter 
on  Elementary  Bookkeeping. 

10.  Show  how  the  use  of  special  columns  in  the  Cash  Book  does  away  with 
the  awkward  entry  in  the  simpler  form  of  Cash  Book,  for  the  purpose  of  record- 
ing a  note  of  ours  discounted  at  the  bank. 

Exercise  42A 

1.  Enter  the  transactions  of  Exercise  26B,  page  128,  employing  a  Sales  Book, 
Purchase  Book,  Columnar  Journal,  and  Columnar  Cash  Book.  Provide  on 
the  receipt  side  of  the  Cash  Book  for  the  following  columns:  Accounts  Receiv- 
able, Discount  on  Sales,  Net,  Discount  on  Notes,  and  General;  on  the  disburse- 
ment side,  Accounts  Payable,  Discount  on  Purchases,  Net  and  General. 
Employ  three  Ledgers,  a  General  Ledger,  a  Sales  Ledger  and  a  Purchase  Ledger. 
There  are  to  be  four  columns  in  the  Journal:  Accounts  Payable  and  General 
on  the  debit  side  and  General  and  Accounts  Receivable  on  the  credit  side. 

2.  Close  the  books  of  original  entry  resulting  from  "  1,"  above. 

3.  Post  to  the  three  Ledgers. 

4.  Prepare  a  Trial  Balance  of  the  General  Ledger  and  Schedules  of  the  Sales 
Ledger  and  of  the  Purchase  Ledger. 

5.  Prepare  a  Working  Sheet  based  upon  the  Trial  Balance,  above. 

6.  Prepare  an  Income  and  Profit  and  Loss  Statement.  (Use  same  inventories 
as  in  Exercise  2QB,  page  129.) 

7.  Prepare  a  Balance  Sheet. 

Exercise  42B 

Repeat  instructions  contained  in  Problems  1  to  7  inclusive,  of  Exercise 
42 A,  for  Exercise  26C,  page  137. 


PART  IV 

PARTNERSHIP  BOOKKEEPING 
AND   ACCOUNTING 

We  have  already  seen  that  the  principles  of  double 
entry  bookkeeping  arc  of  universal  ap^plication,  irre- 
spective of  the  forr  of  the  original  entry  book  which 
may  be  employed  to  rec.  rd  transactions.  We  are  about 
to  learn  that  the  principles  which  govern  the  recording 
of  transactions  which  occur  in  a  sole  proprietorship 
remain  unchanged  when  ownership  reposes  in  a 
partnership. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING 

Thus  far  in  our  work  we  have  been  keeping  books  of  sole  proprietor- 
ships, that  is,  of  concerns  owned  by  individuals.  Many  enterprises, 
however,  are  conducted  by  two  or  more  individuals  acting  as  partners, 
and  it  becomes  necessary  for  us  to  learn  how  to  keep  the  books  of  such 
organizations. 

The  first  questions  which  concern  us  do  not  involve  bookkeeping. 
Why  should  two  or  more  people  combine  Tor  the  purpose  o'  carrying 
on  an  enterprise  or  business  jointly?  The  history  of  commerce  shows 
that  such  partnerships,  as  they  are  called,  arc  of  considerable  antiquity. 
It  seems  that  very  early  in  the  development  cf  business  it  was  realized 
that  a  person  could  not  be  in  more  than  one  place  at  one  and  the  same 
time,  and  that  human  beings  were  subject  to  interruption  of  their 
activities  due  to  illness  and  other  causes,  and  so,  for  the  purpose  of 
giving  continuity  to  an  enterprise,  it  was  found  desirable  to  combine  the 
activities  of  two  or  more  individuals.  Moreover,  everything  else  being 
equal,  two  people  could  command  greater  resources  and  greater  ability 
than  the  same  individuals  acting  independently  of  each  other.  But 
with  the  advantages  which  accrue  as  a  result  of  partnerships  there  are 
certain  serious  handicaps.  These  questions  of  advantages  and  dis- 
advantages are  more  fully  considered  in  law  com-ses,  but  it  is  well  for  us 
here  to  siunmarize  the  disadvantages  very  briefly. 

The  death  of  a  partner  interrupts  the  partnership,  which,  in  the 
absence  of  a  specific  agreement  to  take  care  of  such  an  emergency, 
means  dissolution.  This  is  also  true  in  case  of  the  bankruptcy  or 
insanity  of  an  individual  member  of  the  partnership.  Ordinarily,  any 
one  partner  can  bind  all  his  copartners  to  a  contract  which  may  event- 
ually result  in  loss.  Finally,  friction  is  likely  to  result  in  loss  and  detri- 
ment to  the  organization  when  the  management  reposes  in  more  than 
one  person. 

It  is  usual  to  commence  partnership  relations  by  entering  into  a 
formal  agreement  which  is  frequently  called  Articles  of  Copartnership. 
The  drawing  up  of  such  agreements  should  invariably  be  left  to  a  lawyer, 
because  experience  is  replete  in  examples  of  serious  loss  resulting  from 
amateur  handling  of  such  legal  papers.    Though  it  is  not  intended  to 

227 


228  BOOKKEEPING  AND  ACCOUNTING 

teach  the  student  how  to  draw  up  partnership  contracts,  it  is  desirable 
that  he  famiharize  himself  in  a  general  way  with  the  content  of  an 
ordinary  copartnership  agreement.  The  following  is  taken  from  "  Ele- 
ments of  Accounting,"  pages  87-88. 

43.  Articles  of  Copartnership 

These  Articles  of  Agreement,  made  and  entered  into  this  second  day  of 

January,  one  thousand  nine  hundred  and ,  by  and  between  John  Doe, 

of  the  city  of  New  York,  party  of  the  first  part,  and  Richard  Roe,  of  the  same 
place,  party  of  the  second  part, 

WITNESSETH,  as  foUows: 

1.  The  said  parties  above  named  hereby  agree  to  become  partners  in  the 
retail  shoe  business,  located  in  the  City  of  New  York  under  the  firm  name  and 
style  of  Doe  &  Roe,  said  partnership  to  continue  for  five  years  from  the  date 
hereof. 

2.  The  capital  of  the  said  partnership  shall  consist  of  eight  thousand  dollars 
($8,000.00),  in  cash,  contributed  as  follows:  John  Doe  to  contribute  five 
thousand  dollars  ($5,000),  and  Richard  Roe  to  contribute  three  thousand  dollars 
($3,000).  The  said  contributions  are  to  be  employed  as  a  common  fund  in 
the  conduct  of  the  business,  for  their  mutual  benefit  and  advantage. 

3.  During  the  continuance  of  the  partnership  herein  mentioned,  each  of 
the  partners  shall  give  his  time,  skill,  and  attention  to  the  business,  and  exert 
his  best  powers  for  their  joint  interest,  profit,  benefit  and  advantage,  and  truly 
buy,  sell  and  trade  with  their  joint  stock,  and  the  increase  thereof,  in  the  said 
business.  They  shall  bear,  pay  and  discharge  equally  between  them  all  expenses 
of  the  business;  all  losses  and  all  gains  arising  from  the  conduct  of  the  business 
shall  be  borne  and  divided  equally  between  them. 

4.  For  the  time,  skill  and  attention  given  to  the  business  John  Doe  shall 
receive  the  sum  of  one  hundred  dollars  ($100.00)  per  month,  and  Richard  Roe 
the  sum  of  seventy-five  dollars  ($75.00)  per  month,  said  sum,  in  both  cases, 
to  be  charged  to  Salaries  account. 

5.  Neither  partner  shall  draw  more  than  one  hundred  dollars  ($100.00) 
per  month,  in  addition  to  the  salary  herein  stipulated  and  allowed,  and  such 
drawings  shall  be  charged  to  their  respective  Personal  accounts.  If  at  the 
end  of  each  year  it  is  found  that  either  partner's  withdrawals  exceed  his  share 
of  the  net  gain  for  the  said  year,  then  he  shall  immediately  reimburse  the  firm 
with  the  amount  of  the  deficit. 

6.  All  the  transactions  of  the  partnership  shall  be  truly  entered  in  Double 
Entry  books  of  account,  and  the  same  are  to  be  audited  periodically  by  a  certi- 
fied public  accountant.  On  the  thirty-first  day  of  December  of  each  year  the 
books  shall  be  closed  by  a  certified  public  accountant,  and  the  net  profit  or 
net  loss  for  the  year  ascertained  and  apportioned. 

7.  The  said  parties  hereby  mutually  agree  that  during  the  continuance  of 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    229 

the  said  partnership  neither  of  them  shall  indorse  any  note,  or  become  surety 
for  any  person,  without  the  written  consent  of  the  said  other  partner. 

8.  And  it  is  finally  agreed  that  at  the  termination  of  the  said  partnership 
the  said  parties,  each  to  the  other,  shall  and  will  make  a  true,  just  and  final 
account  of  all  things  relating  to  their  said  business,  and  in  all  things  truly 
adjust  the  same;  and  all  the  stock,  as  well  as  the  gains  and  increase  thereof, 
which  shall  appear  to  be  remaining,  either  in  money,  goods,  wares,  debts  and 
otherwise,  shall  be  equitably  divided  between  them. 

IN  WITNESS  WHEREOF,  the  parties  hereto  have  hereunto  interchange- 
ably set  their  hands,  the  day  and  year  first  above  written. 

John  Doe  (L.S.) 

Richard  Doe        (L.S.) 

(These  documents  conclude  with  the  signature  of  a  witness,  and  the 
attest  of  a  notary  public.) 

It  is  a  good  exercise  to  analyze  an  agreement  such  as  the  above  and 
to  tabulate  the  analysis  so  as  to  determine  the  constituent  elements 
of  the  contract.  Such  an  analysis  of  the  foregoing  agreement,  sup- 
plemented by  legal  knowledge  which  it  is  assimaed  is  at  the  student's 
disposal,  will  make  clear  the  following  outline: 

1.  Date  on  which  the  partnership  commences. 

2.  The  names  of  the  people  entering  into  partnership  agreement 
technically  known  as  the  *'  parties  "  to  the  contract. 

3.  The  nature  of  the  business  for  which  the  partnership  is  organized. 

4.  The  address  or  location  of  the  business. 

5.  The  firm  name  or  style  under  which  the  business  is  to  be  con- 
ducted. 

6.  The  time  during  which  the  organization  is  to  continue.  Fre- 
quently there  is  included  a  provision  for  extension  of  time  without  the 
necessity  of  entering  into  another  formal  agreement.  It  is  also  well 
to  include  provision  as  to  the  notice  required  from  one  partner  to 
another  in  case  of  a  desire  to  dissolve  previous  to  the  period  for  which 
originally  organized. 

7.  The  amount  invested  by  each  partner. 

8.  The  rights  and  duties  of  the  partners.  In  general  it  may  be 
said  that  each  partner,  in  the  absence  of  specific  agreement  to  the 
contrary,  is  to  give  his  full  time  to  the  business  and  to  work  for  the 
best  interests  of  the  business. 

9.  A  statement  as  to  the  division  of  profits  and  losses  should  be 
included  because  an  equal  division  is  assimied  unless  otherwise  agreed 
upon. 

10.  Partners  are  not  allowed  compensation  unless  specified  in  the 


230  BOOKKEEPING  AND  ACCOUNTING 

agreement.    Hence  the  need  of  expressly  stating  the  salaries  of  each 
partner. 

11.  As  it  is  desirable  to  limit  the  amount  of  money  which  individual 
partners  may  withdraw  from  the  business,  a  clause  in  the  agreement 
limiting  such  drawings  is  advisable. 

12.  The  provision  for  keeping  modern  books  and  for  having  them 
audited  by  certified  public  accountants  is  becoming  more  universally 
recognized  as  a  wise  one. 

13.  The  restriction  on  the  individual  partner,  as  stated  in  Clause  7 
of  the  partnership  agreement,  is  based  upon  the  knowledge  that  creditors 
of  the  individual  partners  may,  under  certain  conditions,  attach  the 
partnership  property  for  the  payment  of  debts  of  an  individual  member 
of  the  organization. 

14.  The  manner  and  method  of  dissolution  is  frequently  included 
so  as  to  avoid  subsequent  disputes. 

15.  Other  provisions  are  frequently  included,  and  the  student  is 
advised  to  consult  legal  texts  for  further  knowledge  of  the  subject. 


Questions 

1.  Give  two  reasons  favoring  partnership  organizations. 

2.  Give  two  reasons  against  partnership  organizations. 

3.  What  is  meant  by  Articles  of  Copartnership? 

4.  Is  a  written  agreement    necessary   to    create    a    partnership?    Explain 
fully. 

5.  On  the  basis  of  the  copartnership  contract  shown  on  pages  228,  229, 
answer  the  following  questions: 

(a)  When  did  the  partnership  commence? 

(b)  On  what  date  was  it  to  terminate? 

(c)  How  much  was  the  "  party  of  the  first  part  "  to  invest? 

(d)  How  much  was  Richard  Roe  to  invest? 

(e)  State  in  your  own  words  the  duties  of  the  partners. 

(f)  How  were  profits  and  losses  to  be  divided? 

(g)  What  limitation  is  placed  upon  their  personal  drawings? 

(h)  Are  the  salaries  of  the  partners  to  be  considered  as  personal  drawings? 

Explain  fully. 
(i)   How  often  are  the  books  to  be  closed? 

6.  Do  you  favor  a  written  contract  between  partners?    Give  reasons  for 
yovLT  answers. 

7.  In  view  of  the  fact  that  lawyers  should  be  asked  to  draw  up  copartnership 
agreements,  justify  the  study  of  such  contracts  by  the  bookkeeper. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    231 

Exercise  43 

Inspect  any  copartnership  agreement  which  you  can  obtain,  and  analyze 
it  in  the  manner  shown  on  pages,  229,  230. 

Partnership  Bookkeeping 

We  shall  now  proceed  to  the  bookkeeping  involved  in  partnerships. 
In  this  connection  we  will  consider: 

Opening  entries  of  partnerships. 
Routine  entries  occurring  in  partnerships. 
The  closing  entries  for  partnerships. 
The  bookkeeping  entries  required  at  dissolution. 
The  bookkeeping  entries  necessitated  by  the  admission  of  a 
new  partner. 


44.  Opening  Entries  for  Partnerships 

Case  I. — If  Mr.  Brown  commences  business  by  investing  cash, 
$1,000.00,  the  opening  entry  is  a  very  simple  matter.  If  Mr.  Smith, 
hkewise,  invests  $1,000.00  in  a  similar  business,  the  opening  entry 
is  equally  simple.  And  if  Messrs.  Brown  and  Smith  invest  $1,000, 
each,  in  the  same  business,  the  entry  therefor  is  no  more  difficult. 

The  entry  for  this  partnership  investment  is  as  follows: 


L.F. 


C.B.  1 
1 

C.B.  1 
3 


April  1,  19— 
B.  Brown  and  S.  Smith  have  this 
day  formed  a  copartnership  under  the 
firm  name  of  Brown  &  Smith  for  the 
purpose  of  conducting  a  wholesale  dry 
goods  business,  at  900  Broadway,  New 
York  City,  according  to  the  terms  of 
a  copartnership  agreement  executed 
this  day.  The  investment  of  each  is 
$1,000.00  in  cash,  and  the  following  en 
tries  are  for  the  purpose  of  opening  the 
books: 


Cash 


B.  Brown,  Capital 
1 


Cash 


S.  Smith,  Capital 


1,000 


1,000 


00 


00 


1,000 


1,000 


00 


00 


232 


BOOKKEEPING  AND  ACCOUNTING 


In  cases  of  this  kind,  it  is  sometimes  desired  to  make  a  combined 
entry  instead  of  the  two  separate  entries  as  shown  above.  The  two 
separate  entries,  however,  are  more  usually  employed.  When  a  com- 
pound  entry  is  desired,  it  is  as  follows: 


L.F. 

C.B.  1 
1 
3 


April  1,  19— 
(Explanation  as  before.) 


Cash 


B.  Brown,  Capital 
S.  Smith,  Capital 


2,000 


00 


1,000 
1J)00 


00 
00 


The  above  amounts  would  also  have  to  appear  in  the  Cash  Book 
so  as  to  record  in  the  proper  book  of  original  entry  that  business  was 
commenced  with  $2,000.00  cash  on  hand.  But  as  was  explained  in 
a  previous  connection,  opening  entries,  as  a  general  rule,  even  if  they 
consist  of  cash  only,  are  also  included  in  the  Journal  so  as  to  facilitate 
proper  explanation. 

The  Cash  Book  entry  is  as  foUows: 


19— 
Apr. 

1 

1 

Jl 
Jl 

B.  Brown,  Capital 
S.  Smith,  Capital 

Investment 
Investment 

1,000 
1,000 

00 
00 

Case  II. — ^When  partnerships  are  formed,  the  investment  of  one 
partner  not  infrequently  consists  of  an  established  business.  In  this 
case,  he  invests  not  only  cash,  but  other  assets.  Let  us  assume  that 
Mr.  Brown's  investment  consisted  of  $3,500.00;  $1,000.00  in  cash,  the 
balance  in  various  other  assets,  while  Smith's  investment  consisted  of 
$2,500.00  in  cash.     The  entry  is  shown  at  the  top  of  page  233. 

Of  course,  entries  for  the  cash  parts  of  the  iivestment  would  have 
to  appear  in  the  Cash  Book. 

Case  III. — ^A  somewhat  more  compHcated  situation  arises  when  one 
of  the  partners  invests  certain  assets,  and  the  business  assumes  some 
of  his  liabihties.  In  this  case,  the  partnership  agrees  to  settle  the 
individual  partner's  liabilities  at  their  maturity.  Assuming  that  Mr. 
Brown's  investment  of  $3,500.00  was  decreased  by  the  assumption  of 
his  liability  of  $800.00  in  Accounts  Payable,  the  opening  entry  for  the 
partnership  would  be  as  shown  in  the  second  entry  on  page  233. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    238 


C.B.  1 

8 

12 

5 

1 

C.B.  1 
3 


April  1,  19— 

B.  Brown  and  S.  Smith  have  this  day 
formed  a  copartnership,  under  the  firm 
name  of  Brown  &  Smith,  for  the  purpose 
of  conducting  a  wholesale  dry  goods 
business,  at  900  Broadway,  New  York 
City,  according  to  the  terms  of  a  co- 
partnership agreement  executed  this 
day.  Mr.  Brown  invests  $3,500.00,  of 
which  $1,000.00  is  in  cash;  Mr.  Smith 
invests  $2,500.00  in  cash: 

Cash 

Merchandise  Inventory 
Furniture  and  Fixtures 
Accounts  Receivable  ^ 

B.  Brown,  Capital 
1 
Cash 

S.  Smith,  Capital 


1,000 
800 
350 

1,350 


2,500 


00 
00 
00 
00 


00 


3,500 


2,500 


00 


00 


C.B.  1 

8 
12 
5 
6 
1 


April  1,  19— 

(Explanation  similar  to  that  given 
previously.) 

Cash 

Merchandise  Inventory 
Furniture  and  Fixtures 
Accounts  Receivable 

Accounts  Payable 

B.  Brown,  Capital 


1,000 

00 

800 

00 

350 

00 

1,350 

00 

800 
2,700 

00 
00 


Case  IV. — As  another  illustration  of  opening  entries,  let  us  assume 
that,  though  Mr.  Brown's  contribution  to  the  partnership  of  Brown  & 
Smith    amounted  to  $2,700.00,   he  wished  to    invest  only  $2,500.00. 

1  A  Schedule  of  Accounts  Receivable,  showing  how  much  individual  concerns 
owe,  would  be  employed  to  enable  the  bookkeeper  to  open  accounts  in  the  Sales 
Ledger  with  the  debtors. 


234 


BOOKKEEPING  AND  ACCOUNTING 


The  excess  of  $200.00  ($2,700.00  less  $2,500.00)  would  be  analogous 
to  a  personal  deposit  of  Mr.  Brown,  subject  to  withdrawal  by  him,  in 
the  absence  of  special  agreement,  at  his  election.  The  opening  entry 
would  have  to  take  into  consideration  the  fact  that  this  $200.00  was 
not  a  capital  investment.  This  aim  would  be  attained  by  crediting 
the  $200.00  to  Mr.  Brown's  ''  personal  "  account.  This  account  is  also 
called  a  *'  drawing "  account  or  a  "  private "  account.  The  entry 
giving  effect  to  this  modification  is  as  follows: 


April  1,  19— 

(Explanation  similar  to  that  given 
previously.) 

Cash 

Merchandise  Inventory 
Furniture  and  Fixtures 
Accounts  Receivable 

Accounts  Payable 

B.  Brown,  Capital 

B.  Brown,  Personal 


1,000 

00 

800 

00 

350 

00 

1,350 

00 

800 

2,500 

200 

00 
00 
00 


Case  V. — ^Enough  has  been  presented  to  enable  the  conscientious 
student  to  understand  the  opening  entries  for  any  ordinary  partnership. 
It  is  necessary,  however,  to  present  a  difficulty  which  arises  when  one 
or  more  of  the  partners  invest  a  Note  Receivable.  In  such  cases, 
though  many  partners  would  be  wilhng  to  accept  the  note  at  its  face 
value,  it  is  well  to  know  that  examination  boards  usually  require  that 
the  note  be  taken  at  its  present  or  market  value.  Thus,  if  a  note  dated 
March  15,  19 — ,  for  $2,000.00,  due  in  60  days,  were  invested  by  Mr. 
Brown  on  April  1,  this  investment  would  result  in  crediting  him,  not 
with  $2,000.00,  but  with  $2,000.00  less  the  interest  on  $2,000.00  from 
April  1  until  the  maturity  of  the  note.  In  the  absence  of  a  stated 
rate  of  interest,  6%,  the  legal  rate  (in  New  York  and  in  many  other 
states),  will  be  taken  as  a  basis  of  computation.  The  interest  on 
$2,000.00  from  April  1  to  maturity,  is  $14.33  (43  days  discount  on 
$2,000.00  at  6%);  therefore  the  net  proceeds  or  present  value  is 
$1,985.67.  Assuming  now  that  Mr.  Brown  invested  this  note  in 
addition  to  the  items  listed  in  the  entry  for  Case  III,  the  proper 
entry  would  be  as  follows: 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    235 


April  1,  19— 

(Explanation  as  before.) 

C.B.I 

Cash 

8 

Merchandise  Inventory 

12 

Furniture  and  Fixtures 

5 

Accounts  Receivable 

7 

Notes  Receivable 

6 

Accounts  Payable 

1 

B.  Brown,  Capital 

2 

Discount  Earned 

1,000 

00 

800 

00 

350 

00 

1,350 

00 

2,000 

00 

800 

4,685 

14 

00 
67 
33 


The  student  should  observe  that  while  the  note  was  not  accepted 
by  the  business  as  worth,  on  the  date  of  investment,  fully  $2,000.00, 
it  is  nevertheless  entered  in  the  business  at  this  figure.  This  is  because 
of  the  custom  followed  by  bookkeepers  always  to  enter  notes  on  the 
books  at  face  value.  Observe,  however,  that  Mr.  Brown  received 
credit  not  for  the  full  $2,000.00,  but  only  for  the  present  value  of  the 
note  on  a  bank  discount  basis.  The  difference  between  the  face  value 
of  the  note  and  the  amount  for  which  Mr.  Brown  was  given  credit, 
$14.33,  is  treated  variously  by  bookkeepers  and  accountants.  One 
interpretation  regards  this  difference  as  a  profit  to  the  business,  and  it 
is  accordingly  credited  to  an  account  which  is  clearly  self-explanatory, 
namely,  Discount  Earned.  It  is  true,  of  course,  that  the  $14.33  is 
not  really  earned  until  maturity,  but  the  practice  of  showing  the  dis- 
count earned  when  the  note  is  discounted  is  considered  good.  More 
advanced  study  will  reveal  certain  modifications,  but  for  our  present 
purposes,  the  indicated  procedure  is  correct. 

Case  VI. — The  following  Journal  entry  is  as  difficult  a  one  as  the 
student  will  probably  ever  be  called  upon  to  prepare  for  himself.  Note 
that  the  Net  Investment  of  the  partner  is  exactly  equal  to  the  difference 
between  the  assets  contributed  by  him  and  the  Habilities  assumed  by 
the  partnership.  The  student  should  carefully  study  the  entry  so  as 
to  become  thoroughly  familiar  with  it. 

The  investment  of  each  partner  is  shown  on  page  236. 

Comments. — (a)  Note  that  the  items  have  been  posted,  as  is  indi- 
cated by  the  check  figiu-es  in  the  Ledger  Folio  colunm. 

(b)  When  an  amount  which  is  contributed  or  invested  consists  of 
several  similar  items  it  is  customary  to  list  the  items  imder  appro- 
priate headings,  called  schedules. 


236 


BOOKKEEPING  AND  ACCOUNTING 


7 

10 

CBl 

3 

4 

CBl 
15 


Accounts  Receivable 

Notes  Receivable 

Mdse.  Inventory 

Furniture  and  Fixtures 
Notes  Payable 
Accts.  Payable 
B.  Brown,  Capital 

Notes  Receivable 
Horses  and  Wagons 
Cash 

S.  Smith,  Capital 
S.  Smith,  Drawing 

Cash 

R.  T.  Longley,  Capital 


As  per  Schedule  B 
As  per  Schedule  C-1 
As  per  Schedule  A 
As  per  Schedule  D 
As  per  Schedxile  F 
As  per  Schedule  E 
Net  Investment 

As  per  Schedule  C-2 
As  per  Schedule  G 

Net  Investment 
Deposit 


Net  Investment 


8,300 

00 

2,500 

00 

4,200 

00 

700 

00 

1,500 

3,200 

11,000 

5,000 

00 

1,000 

00 

9,000 

00 

13,000 
2,000 

5,000 

00 

5,000 

00 


(c)  It  is  assumed  that  the  Notes  Receivable  invested  by  Mr.  Brown 
were  accepted  by  the  partnership  as  at  their  face  value.  Accordingly, 
no  discount  need  be  deducted. 

(d)  As  a  type  of  Schedules,  consider  the  following: 

Schedule  B 

Accounts  Receivable  invested  by  B.  Brown 


Debtor. 

Address. 

Date  of 

Sale. 

Terms. 

Amount. 

F.  R.  Bates 
Smith  Co. 
N.  Y.  Trading  Co. 
Sears,  Moxie  &  Co. 
Orleans  &  Sons 

8  E.  23d  St.,  City 
Troy,  N.  Y. 
11  Water  St.,  City 
Newark,  N.  J. 
142  South  Street,  Bos- 
ton, Mass. 

Mar.  18 
Mar.    4 
Feb.  26 
Mar.  21 

Mar.  15 

On  a/c 
On  a/c 
On  a/c 
On  a/c 

On  a/c 

$2,875.00 

4,250.00 

158.47 

216.53 

800.00 

$8,300.00 

Schedule  C-I 

Notes  Receivable  invested  by  B.  Brown 


Date. 

Maker. 

Payee. 

Time. 

Face. 

Where  Payable. 

Jan.     8 
Jan.  21 
Mar.  21 

Smith  Co. 
Smith  Co. 
Harlem  &  Co. 

B.  Brown 
B.  Brown 
B.  Brown 

4  mos. 

4  mos. 

60  days 

si,ooo.oo 

1,000.00 
500.00 

1st  Natl.  Troy 
1st  Natl.  Troy 
Com.  Exch. 
(Broad  St.) 

$2,500.00 

PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    237 


Schedule  A 
Merchandise  mvested  by  B.  Brown,  and  appraised  by  Messrs.  Smith  &  Longley 


1,260  yd.  No.  810  Calico        @  5c. 
2,600  yd.  No.  1050  Linen       @  12^c. 
2,908  yd.  No.  308  Woolens     @  1 .00 
693  yd.  No.  408  Woolens     @  90c. 
Miscellaneous  (trimmings,  thread,  etc) 


$63.00 
325.00 
2,908.00 
623.70 
280.30 

$4,200.00 


Case  VII. — When  the  number  of  personal  accounts  included  in 
Accounts  Receivable  is  large,  then  the  schedules  shown  in  connection 
with  Case  VI  are  employed.  The  opening  Journal  entry  is  the  basis 
for  the  accounts  in  the  General  Ledger,  but  the  opening  balances  in 
the  controlled  ledgers  are  obtained  from  the  schedules.  The  fact  that 
such  balances  were  taken  from  a  schedule  instead  of  from  some  book 
of  original  entry,  is  clearly  indicated,  thus: 


Horace  Walker  &  Co. 

19- 

Apr. 

1 

Schedule  A 

412 

80 

When,  however,  the  number  of  personal  accounts  are  few,  the  items 
to  be  posted  to  the  subsidiary  ledgers  are  incorporated  in  the  opening 
entry.  The  illustration  of  the  entry,  shown  on  page  238,  together 
with  the  subsequent  postings,  should  prove  useful  to  the  student. 

Comments. — (a)  The  form  of  Journal  employed  indicates  that  pro- 
vision has  been  made  to  keep  controlling  accounts. 

(6)  Note  how  the  individual  customers'  accounts  have  been  indented. 

(c)  A  similar  observation  is  in  order  regarding  the  accounts  with 
individual  creditors. 

(d)  The  checking  for  items  which  appear  in  the  General  Ledger 
columns  refers  to  pages  in  the  General  Ledger. 

(e)  The  accounts  with  customers  have  been  posted  to  the  indicated 
pages  in  the  Sales  Ledger. 

(/)  Similarly,  the  creditors'  accounts  have  been  transferred  to  various 
pages  in  the  Purchase  Ledger. 

(2)  The  Cash  Book  entry  for  the  cash  part  of  Mr.  Brown's  invest- 
ment is  shown  on  page  238. 


238  BOOKKEEPING  AND  ACCOUNTING 

(1)  The  Journal  entry: 

April  1,  19— 


Accounts 
Payable 

General 

L.F. 

L. 

F. 

General 

Accounts 
Receiv- 
able. 

(Explanation  omitted.     See  page  233). 

1,000 

00 

C.B.2 

Cash 

800 

00 

6 

Mdse.  Inventory 

350 

00 

7 

Furniture  and  Fixtures 

1,350 

00 

4 
2 
3 

4 

Accounts  Receivable: 

Horace  Walker  &  Co.             $412 .  80 
S.  S.  Olney  &  Sons                       76 .  75 
Brewster  &  Sons                         600 .  00 

5 

Simpson  &  Simpson                   I 
Accounts  Payable: 

J60.45 

5 

800 

00 

Bunker,  Travis  &  Co.   $150.00 

2 

Hurst  «fe  Bros.                   410.00 

3 

Young  &  Lamb                 J 
B.  Brown,  Capital 

240.00 

4 

1 

2,700 

00 

(2)  The  Cash  Book  entry: 

Cash  Receipts 

Date. 

L.F. 

Sales 
Ledger. 

Sales 
Disct. 

Cus- 
tomers 
Net. 

General. 

19— 

Apr. 

1    Jl 

B.  Brown,  Cap. 

Part  of  his  in- 
vestment 

1.000 

00 

Comments. — (a)  Note  that  Mr.  Brown's  account  will  not  be  credited 
because  of  the  entry  shown.  His  account  will  be  credited  from  the 
Journal  for  the  entire  net  investment. 

(6)  The  form  of  Cash  Book  differs  from  those  shown  previously. 

(c)  The  first  column  is  headed  "  Sales  Ledger  "  instead  of  Accounts 
Receivable.  To  this  column  is  carried  the  amount  of  a  customer's 
indebtedness  canceled  by  his  cash  payment  to  us. 

(d)  Instead  of  carrying  the  net  amount  received  from  customers 
to  the  General  column,  a  new  column  has  been  added,  here  styled 
"  Customers  Net." 

(e)  The  sum  of  the  Sales  Discount  column  and  the  Customers  Net 
column  should  be  exactly  equal  to  the  Sales  Ledger  column. 

(/)  At  the  end  of  each  month,  the  total  of  the  third  column  must 
be  carried  into  the  fourth,  so  as  to  show  the  entire  cash  debit. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    239 

(3)  Posting  to  the  General  Ledger: 


1 

B.  Brown,  Cap. 

19— 

Apr.  1   Jl   2,700.00 

1 

Cash 


Accounts  Receivable 


19— 

Apr.  1   Jl    1,350.00 


Accounts  Payable 


19— 

Apr.  1    Jl    800.00 


Merchandise  Inventory 


19— 

Apr.  1    Jl    800.00 


Furniture  and  Fixtures 


19— 

Apr.  1    Jl    350.00 


Comments. — (a)  These  simple  forms  of  *'  T  '^  accounts,  slightly 
modified,  will  be  readily  understood. 

(6)  A  Proof  Trial  Balance  could  now  be  taken  to  prove  the  cor- 
rectness of  the  posting.  The  Cash  balance  would  be  taken  from  the 
Cash  Book,  at  this  point. 

(4)  Posting  to  the  Sales  Ledger: 


Horace  Walker  &  Co. 


19— 

Apr.  1    Jl   412.80 


S.  S.  Olney  &  Sons 


19— 

Apr.  1    Jl   76.75 


240 


BOOKKEEPING  AND  ACCOUNTING 


Brewster  &  Sons 


19— 

Apr.  1    Jl    500.00 


Simpson  &  Simpson 


19— 

Apr.  1    Jl    360.45 


(5)  Posting  to  the  Purchase  Ledger: 


2 

Bunker,  Travis  &  Co. 

19— 

Apr.  1     Jl    150.00 

Hurst  &  Bros. 


19— 

Apr.  1    Jl   410.00 


Young  and  Lamb 


19— 

Apr.  1     Jl    240.00 


Questions 

1.  What  is  meant  by  the  opening  entry  for  a  partnership? 

2.  Study  the  opening  entry  for  Brown  &  Smith,  page  233.  Is  it  clear? 
Is  it  concise?    Is  it  complete?    Explain  fully. 

3.  Why  do  opening  entries  for  cash  investments  appear  in  the  Journal  as 
well  as  in  the  Cash  Book? 

4.  Prove  that  the  fundamental  principle  of  double  entry  bookkeeping  is 
observed  in  the  opening  entry  for  Brown  &  Smith,  referred  to  in  Question  2, 
above. 

5.  Differentiate  between  a  partner's  capital  account  and  his  drawing  account. 

6.  To  how  much  credit  is  a  partner  entitled  who  invests  a  note  payable  to 
his  order,  indorsed  by  him  to  the  firm,  before  the  maturity  of  the  note? 

7.  What  is  the  function  of  a  Discount  Earned  account?  Differentiate 
between  this  account  and  a  Discount  on  Notes  account. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    241 

8.  As  an  original  exercise,  try  to  explain  the  probable  significance  of  a 
Discount  Lost  account. 

9.  What  is  meant  by  a  Schedule  of  Notes  Receivable? 

10.  On  the  basis  of  the  entry  shown  on  page  236,  where  will  the  individual 
accounts  with  customers  appear? 

11.  How  will  the  accounts  get  into  the  Sales  Ledger?    Explain  on  the  basis 
of  the  following  account: 


N.  Y.  Trading  Co. 


11  Water  St.,  City 


19— 
Jan. 


Schedule  B 


158 

47 

Exercise  44A 

Frank  Lind  and  Samuel  E.  Bain  formed  a  partnership  on  September  8, 
19 — ,  under  the  firm  name  of  Frank  Lind  &  Co.  Frank  Lind  invested  cash 
$3,650.00;  fixtures,  $1,200.00;  stock  of  merchandise,  $4,850.00;  accounts 
receivable,  as  per  schedule,  $14,550.00.  S.  E.  Bain  invested  cash,  $20,000.00. 
Show  the  opening  entry. 

Exercise  44B 

Thomas  Nelson,  Franklin  M.  Nelson  and  Sylvester  Boyd  Nelson  organize 
the  grocery  firm  of  Thos.  Nelson  &  Sons,  on  November  21,  19 — .  T.  Nelson 
invests  $15,000.00  cash,  F.  M.  Nelson,  $5,000.00  in  cash  and  S.  B.  Nelson, 
$1,000.00  cash  and  his  own  note  in  favor  of  Thomas  Nelson  &  Sons,  due  May  21, 
19 — ,  for  $4,000.00,  which  the  firm  agrees  to  take  at  its  face  value.  Open  the 
books  of  the  firm. 

Exercise  44C 

Saul  S.  Snow  is  in  the  furniture  business  for  himself.  On  December  31, 
19 — ,  his  Balance  Sheet  appears  as  follows: 

S.  S.  Snow— Balance  Sheet— Dec.  31,  19— 


Real  Estate 

$10,000.00 

Accounts  Payable 

$21,000.00 

Plant  and  Fixtures 

24,000.00 

Loans  Payable 

10,000.00 

Inventory 

20,000.00 

S.  S.  Snow,  Capital 

72,200.00 

Accounts  Receivable 

41,000.00 

Cash 

8,200.00 
$103,200.00 

$103,200.00 

= 

242 


BOOKKEEPING  AND  ACCOUNTING 


On  the  same  date,  the  balance  sheet  of  one  of  his  friends,  in  the  same  line 
of  business,  is  as  follows: 


Robert  E.  Livermore — Balance  Sheet — Dec.  31, 19 — 


Cash 
Fixtures 
Inventory 
Accounts  Receivable 


$24,500.00 

3,600.00 

37,810.00 

20,500.00 


$86,410.00 


Accounts  Payable 

Notes  Payable 

Robt.  E.  Livermore,  Cap. 


$6,700.00 
15,000.00 
64,710.00 


$86,410.00 


Messrs.  Snow,  Livermore  &  Jameson  decide  to  form  a  partnership  under  the 
firm  name  of  Snow,  Livermore  &  Co.  Mr.  Snow  and  Mr.  Livermore  are  to 
invest  their  respective  businesses,  taken  at  book  value,  while  Mr.  John  T. 
Jameson  is  to  contribute  cash,  $30,000.00. 

Show  the  opening  entries  as  of  January  2,  19 — . 

Exercise  44D 

Show  the  opening  entries  for  44C  above,  on  the  assumption  that  the  co- 
partnership agreement  provided  that  Mr.  Snow  was  to  invest  net  assets 
amounting  to  $70,000.00,  Mr.  Livermore  $60,000.00  and  Mr.  Jameson 
$30,000.00. 

Exercise  44E 

The  following  schedule  accompanied  Mr.  Snow's  Balance  Sheet  (see  Ex- 
ercise 44C  above): 


Schedule  A — Accounts  Receivable 
Dec.  31,  19— 

Debtor. 

Address. 

Date  of  Sales. 

Terms. 

Amount. 

S.  Hart  &  Co. 
Dimeant  &  Co. 
Dimeant  &  Co. 
Lang  &  Lang 
Chas.  Sperry 

Brooklyn 

Montreal 

Montreal 

Philadelphia 

Philadelphia 

Nov.  10 
Nov.  26    , 
Nov.  30 
Dec.    2 
Nov.  28 

60  days 
On  a/c 

On  a/c 
On  a/c 
On  a/c 

$10,000.00 

8,000.00 

6,500.00 

12,000.00 

4,500.00 

$41,000.00 

PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    243 

Mr.  Livermore  presented  the  following  schedule  of  his  customers'  accounts: 
Schedule  One — ^Accounts  Receivable 


Debtor. 

Address. 

Date  of  Sales. 

Terms. 

Amount. 

F.  T.  Jones 
Lang  &  Lang 
C.  Cohen  &  Co. 

Albany,  N.  Y. 
Phila.,  Pa. 
Detroit 

Dec.    3 
Nov.  16 
Nov.  24 

On  a/c 
On  a/c 
On  a/c 

$9,200.00 
7,600.00 
3,700.00 

$20,500.00 

1.  Show  the  opening  entry  based  on  Exercise  44C,  and  follow  the  model 
presented  in  Case  VII,  page  238.  (Prepare  your  own  schedules  of  Accounts 
Payable.) 

2.  Post  the  opening  entries  to  the  General  Ledger,  the  Sales  Ledger  and  the 
Purchase  Ledger. 

3.  Take  a  Trial  Balance  of  the  General  Ledger. 

4.  Prepare  a  Schedule  of  Accounts  Receivable  and  a  Schedule  of  Accounts 
Payable. 

5.  Prepare  a  Balance  Sheet.  (This  exhibit  is  sometimes  referred  to  as  the 
"  Opening  Balance  Sheet.") 


45.  Routine  Entries  of  Partnership 

The  student  has  already  learned  that  the  opening  entries  for  part- 
nerships do  not  differ  radically  from  the  opening  entries  of  sole  pro- 
prietors. He  is  about  to  learn  that  the  routine  or  ordinary  entries  of  a 
copartnership  do  not  essentially  differ  from  similar  entries  in  a  cor- 
responding concern  owned  by  an  individual.  As  a  matter  of  fact,  sales 
and  purchases,  payment  of  invoices  and  wages,  issuing  and  redemption 
of  notes,  and  the  hundred-and-one  other  transactions  common  to  both 
the  partnership  and  the  sole  proprietorship,  are  entered  in  exactly  the 
same  way. 

But  there  are  a  few  transactions  which  are  more  or  less  intimately 
connected  with  partnership  affairs  which  it  is  well  for  us  to  discuss  in  corv- 
nection  with  what  we  have  called  the  Routine  Entries  for  partnerships. 

Case  I, — If  one  of  the  partners,  say  Mr.  Brown,  draws  some  cash 
for  his  personal  use,  the  entry  is  similar  to  that  which  would  have  to 
be  made  if  Mr.  Brown  were  the  sole  owner  of  the  business.  It  is  as 
follows: 

B.  Brown,  Drawing  % 

Cash  $ 


244  BOOKKEEPING  AND  ACCOUNTING 

A  similar  entry  is  made  if  the  concern  pays  money  for  any  personal 
obligation  of  Mr.  Brown.  In  practice,  of  course,  the  entry  would 
appear  in  the  Cash  Book,  but,  as  was  explained  on  a  previous  page, 
the  Journal  is  a  better  medium  by  means  of  which  to  illustrate  typical 
entries. 

Case  II. — It  is  probable  that  the  partners  are  allowed  a  salary 
according  to  the  Articles  of  Copartnership.  Instead  of  charging  to  the 
Expense  account  or  to  the  Salary  account  the  amount  so  received  by 
each  partner  as  salary,  it  is  better  to  charge  it  to  Partners'  Salary 
account.    The  entry  is  as  follows: 

Partners'  Salary  $ 

Cash  $ 


Case  III. — If  instead  of  taking  the  money  due  as  salary,  a  partner 
decides  to  permit  it  to  remain  in  the  business,  the  following  entry  is 
in  order: 

Partners'  Salary  $ 

,  Drawing  $ 


It  should  readily  be  seen  that  the  credit  to  the  Drawing  account 
of  any  partner  constitutes  a  liabiHty  to  the  business.  It  is  not  can- 
celed or  reduced  until  the  amount  due  has  been  paid. 

Case  IV. — ^When  the  partner  to  whom  salary  is  due  is  finally  paid, 
the  following  entry  results: 

,  Drawing  $ 


Cash  $- 


Ca^e  V. — Frequently,  one  of  the  partners  is  in  charge  of  the  outside 
activities  of  a  business,  that  is,  he  travels  about,  either  as  a  salesman, 
or  as  a  sales  manager,  or  in  some  other  similar  capacity.  It  is  almost 
universally  provided  that  for  all  expenses  incurred  by  him  in  connection 
with  such  traveling  he  should  be  suitably  reimbursed.  When  he  hands 
in  his  voucher  (on  which  there  is  usually  itemized  the  expenses  incurred), 
and  he  is  paid  therefor,  the  following  entry  should  be  made: 

Traveling  Expenses  $ 

Cash  $ 


Case  VI. — If,  however,  the  partner  who  is  entitled  to  such  reim- 
bursement simply  hands  in  his  voucher,  and  elects  not  to  draw  the 
amount  to  which  he  is  entitled,  the  student  will  readily  understand 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    245 

that  an  entry  should  be  made  crediting  the  partner^s  drawing  account 
instead  of  Cash  account: 

Traveling  Expenses  $ 

,  Drawing  $ 


From  what  has  been  said  in  Cases  V  and  VI,  it  must  not  be  inferred 
that  Traveling  Expense  account  occurs  only  in  partnerships.  To  this 
account  there  is  charged  in  organizations,  regardless  of  their  form, 
expenses  incurred  by  travehng  salesmen. 

Case  VII . — When  a  partner  takes  merchandise  for  his  personal  use, 
his  account  is  charged  and  the  credit  is  made  to  the  Sales  account, 
though  infrequently  the  Purchase  account  is  used  instead: 

,  Drawing  $ 


Sales 


Case  VIIL — Should  one  of  the  partners  leave  money  or  a  check 
with  the  firm  and  should  this  amount  then  be  deposited  with  the  firm's 
money,  an  entry  should  be  made  giving  the  individual  suitable  credit. 
Such  an  entry  foUows: 

Cash  $ 

,  Drawing  $ 

Case  IX. — Sometimes  one  of  the  membera  of  the  firm  induces  his 
copartners  to  have  the  firm  issue  to  him  a  promissory  note  which  he 
wishes  to  negotiate  for  his  individual  benefit.  Though  this  is  not  a 
usual  transaction,  it  may  occur  and  the  entry  therefor  is  as  follows: 


,  Drawing 

Notes  Payable 


Case  X. — ^When  the  note  is  finally  paid  by  the  individual  partner 
in  whose  behalf  it  was  issued,  an  entry  is  made  to  reverse  the  first  one: 


Notes  Payable 

,  Drawing 


If,  however,  the  individual  partner  failed  to  meet  the  note  at  its 
maturity,  and  the  firm  had  to  redeem  it,  the  following  entry  would  be 
in  order: 

Notes  Payable  $ 


Cash  $- 


It  should  be  clear  that  the  last  transaction  is  equivalent  to  a  drawing 
of  cash  by  the  partner. 


246  BOOKKEEPING  AND  ACCOUNTING 

When  a  note  is  so  redeemed  by  a  firm,  it  is  just  barely  possible  that 
*'  protest  fees  "  would  also  be  incurred.  If  we  assume  that  the  original 
note  was  for  $1,000.00  and  the  "  protest  fees  "  are  $1.50,  when  the 
note  was  redeemed  by  the  firm  the  following  entry  would  be  made: 

Notes  Payable  $1 ,000. GO 

,  Drawing  1 .  50 

Cash  $1,001.50 

It  should  be  obvious  that  the  $1.50  is  charged  to  the  individual 
partner^s  drawing  account,  because  the  expense  was  incurred  due  to 
failure  on  his  part  to  keep  his  promise. 

Case  XI. — As  a  result  of  a  personal  transaction  between  two  part- 
ners, the  cancellation  is  sometimes  effected  by  transferring  the  amount 
involved  from  one  partner's  account  to  the  other.  Let  us  assume  that 
Mr.  Brown  owes  Mr.  Smith  $50.00  and  that  it  is  agreed  between  the 
partners  that  the  amount  in  question  should  be  transferred  from  Mr. 
Brown's  account  to  Smith's  account.  The  following  entry  gives  effect 
to  this  agreement: 

B.  Brown,  Drawing  $50.00 

S.  Smith,  Drawing  $50.00 

Case  XII . — In  Case  IX  we  discussed  a  situation  which  arises  when 
the  firm  issues  a  promissory  note  to  accommodate  one  of  the  members 
of  the  firm.  A  similar  accommodation  results  when  the  partnership, 
as  such,  indorses  the  individual  promissory  note  of  one  of  its  members. 
The  indorsing  of  such  a  note  creates  what  is  known  in  the  law  as 
a  "  contingent  Hability."  Such  a  contingent  liabiUty  recognizes  the 
fact  that,  in  case  the  maker  of  the  note  (in  this  case,  the  individual 
partner)  fails  to  meet  his  obhgation  at  maturity,  the  indorser  becomes 
Uable  for  the  payment  of  the  promissory  note.  The  contingency  is 
the  possibility  that  the  person  for  whom  the  note  is  indorsed  will  fail 
to  meet  it  at  maturity.  Until  recently  no  entries  were  made  for  such 
transactions  as  this,  but  due  to  the  influence  of  accoimtants,  who  insist 
that  all  transactions  be  shown  on  the  books,  an  entry  is  now  made  to 
show  the  contingent  liability  involved.  The  entry  about  to  be  shown 
is  in  its  simplest  form.  Other  forms,  more  compUcated,  are  also 
employed,  and  these  the  student  may  learn  of  by  consulting  advanced 
books.    The  entry  is  as  follows: 

,  Drawing  $ 


Indorser's  Liability 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    247 

Case  XIII. — When  the  individual  partner  meets  his  note  at  maturity, 
an  entry  is  made  reversing  the  original  entry  for  the  transaction: 

Indorser's  Liability  $ 

,  Drawing  $ 


Case  XIV. — If  the  firm  is  called  upon  to  meet  the  note  at  its  maturity, 
due  to  the  failure  of  the  partner  to  pay  the  same,  an  entry  is  made 
canceling  the  contingent  habiUty  which  is  removed  by  the  meeting  of 
the  obligation,  and  to  charge  the  partner  for  any  fees  incurred: 

Indorser's  Liability  $ 

,  Drawing  $ 


Cash  $- 


It  should  be  observed  that  there  is  charged  to  the  Drawing  account 
of  the  individual  partner  the  amount  of  protest  fees  or  other  expenses 
incident  to  his  failure  to  redeem  his  promissory  note. 

Case  XV. — It  sometimes  happens  that  a  partner  who  has  invested 
Accounts  Receivable  or  Notes  Receivable  is  called  upon  to  make  good 
any  loss  due  to  subsequent  failure  to  collect  such  accounts  or  notes. 
The  ordinary  entry  for  a  loss  due  to  a  bad  debt  is  a  charge  to  Bad  Debts 
account  and  a  credit  to  the  accoimt  representative  of  the  item  which 
was  found  to  be  imcoUectible.  If,  however,  the  loss  is  to  be  borne 
by  the  person  who  invested  the  items  in  question,  then  the  charge, 
instead  of  being  made  to  Bad  Debts  account,  should  be  made  to  the 
individual  partner^s  Capital  account.  The  procedure  depends  alto- 
gether on  the  agreement  between  the  partners  as  to  the  responsibihty 
for  the  ultimate  collection  of  bad  accounts  and  notes  contributed  by 
the  individual  members  of  the  firm. 

Undoubtedly  there  are  other  transactions  which  might  be  included 
under  partnership  routine,  but  enough  have  been  presented  to  enable 
the  student  to  handle  intelligently  the  great  majority  of  ordinary  trans- 
actions which  will  confront  him  in  every-day  practice. 

Questions 

1.  What  is  meant  by  "  routine  entries  for  partnerships  "? 

2.  Do  the  ordinary  transactions  of  a  partnership  differ  radically  from  those 
of  a  sole  proprietorship,  in  the  same  line  of  business?    Explain  fully. 

3.  What  entry  should  be  made  for  salaries  paid  to  partners? 

4.  Wliat  entry  should  be  made  when  the  salary  due  a  partner,  for  any 
reason  whatsoever,  is  not  taken  by  him  at  the  time  it  is  due?  Give  reasons  for 
your  answer. 


248 


BOOKKEEPING  AND  ACCOUNTING 


5.  How  may  two  partners,  one  of  whom  owes  money  to  the  other  for  a 
personal  obligation  not  involving  any  business  transaction,  settle  the  debt 
between  them  without  actually  transferring  cash? 

6.  Who  do  you  understand  by  "  indorser's  liability  "?  Can  this  condition 
arise  except  in  partnerships?    Explain. 

Exercise  45A 

Show  entries  for  the  following  in  the  books  of  A  and  B,  a  partnership; 

1.  A  receives  a  personal  check  for  $165.00,  which  he  instructs  the  book- 
keeper to  deposit  in  the  bank  to  the  credit  of  the  firm. 

2.  While  B  is  on  the  road,  a  bill  for  $18.35  is  received  from  a  department 
store,  representing  purchases  made  by  Mrs.  B  during  the  previous  month. 
A  orders  the  bill  paid  and  the  invoice  is  paid. 

3.  A  purchases  an  automobile  for  $1,800.00,  for  his  personal  use.  The 
firm  check  for  $100.00  is  given  as  deposit  to  bind  the  purchase. 

4.  Received  a  statement  from  B  showing  that  his  expenses  on  the  road 
for  the  past  week  amounted  to  $146.60,  divided  as  follows: 


Expenses  for  week  ending 

Railroad 

Hotels 

Entertainment 

Miscellaneous 

Have  sufficient  funds.    Do  not  send 

Nov. 

20,  19- 
B 

I  any 

.  $36.80 
.     62.55 
.     41.40 
.       5.85 

$146.60 

more  till  I  write. 

5.  Advanced  to  A,  who  was  leaving  on  a  short  business  trip,  $300.00,  for  his 
traveling  expenses.  Upon  his  return,  he  was  to  furnish  an  itemized  statement 
of  his  expenses. 

Exercise  456 

Show  entries  in  the  books  of  the  firm  of  Sellers  &  Lane  for  the  following 

transactions: 

(1)  The  firm  borrowed  from  Mrs.  Lane,  the  mother  of  the  junior  partner, 

$5,000.00,  in  cash. 

(2)  Mr.  Sellers  owes  Mr.  Lane,  $25.00.    Mr.  Sellers  instructs  the  book- 

keeper to  draw  a  firm  check  to  Mr.  Lane's  order  for  this  amount. 

(3)  Mr.  Lane  keeps  a  personal  bank  account.    He  draws  his  personal  check 

for  $75.00  to  pay  the  rent  of  his  apartment. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    249 

(4)  Mr.  Sellers  sold  his  automobile  for  $725.00  today.    The  check  was 

received  by  the  firm  and  deposited  in  the  firm's  account. 

(5)  At  Mr.  Lane's  request,  sent  a  box  of  merchandise,  valued  at  $10.00,  to 

his  aunt,  as  a  birthday  gift.    Inclosed  Mr.  Lane's  personal  card. 

46.  Closing  Entries 

Just  as  in  the  case  of  a  sole  proprietorship,  it  is  necessary  periodically, 
usually  once  a  year,  to  close  the  books  of  partnerships.  Essentially, 
this  process,  as  we  have  already  learned,  consists  of  entering  inventories 
and  accruals,  transferring  all  accounts  showing  losses  or  gains  to  the 
Profit  and  Loss  account,  and  finally  transferring  the  net  profit  or  net 
loss  to  the  proprietor's  account.  The  same  principle  obtains  when  it 
is  necessary  to  close  the  accounts  of  partnerships. 

Case  I. — Let  us  assume  that  the  Profit  and  Loss  accoimt  of  the  firm 
of  Smith  &  Brown  shows  a  credit  balance  of  $2,000.00.  At  the  same 
tinje  let  us  assume  that  Mr.  Brown's  account  is  as  follows 

B.  Brown,  Capital 


19— 

Jan.  1        $4,000.00 


and  that  Mr.  Smith's  account  is  as  follows: 

S.  Smith,  Capital 


19— 

Jan.  1        $2,000.00 


In  order  to  close  the  Profit  and  Loss  account,  it  is  necessary  to 
transfer  the  net  profit  of  $2,000.00  to  the  accounts  of  the  partners. 
The  following  entry  is  necessary: 

Profit  and  Loss  $2,000 .  00 

S.  Smith,  Capital  $,1,000 .  00 

B.  Brown,  Capital  'l,000.00 

The  student  may  be  surprised  to  find  that  Smith  received  as  large 
a  share  of  the  net  profit  as  did  Brown,  despite  the  fact  that  Brown  had 
an  investment  twice  as  large  as  Smith's.    But  the  division  as  showD 


250  BOOKKEEPING  AND  ACCOUNTING 

is  correct,  in  accordance  with  the  provisions  of  partnership  law,  which 
hold  that  in  the  absence  of  a  specific  agreement  between  partners  all 
losses  and  gains  are  shared  equally  between  them. 

Instead  of  carrjdng  the  net  profit  to  the  capital  accounts  of  the 
partners,  it  is  frequently  transferred  to  the  drawing  accounts  as  shown 
ill  the  following  entry: 

Profit  and  Loss  $2,000 .  00 

S.  Smith,  Drawing  $1,000.00 

B.  Brown,  Drawing  1,000 .  00 

The  student,  in  the  absence  of  specific  instructions,  may  follow 
either  procedure,  but  he  should  recall  this  statement  in  connection  with 
Case  IV,  below. 

Case  II. — If  in  Case  I  profits  were  to  be  divided  in  proportion  to 
the  respective  investments  of  the  partners.  Brown  would  have  been 
entitled  to  two-thirds  of  the  $2,000.00  and  Smith  to  only  one-third 
of  $2,000.00,  and  the  following  entry  would  be  correct: 


Profit  and  Loss 

$2,000.00 

B.  Brown,  Capital 

$1,333.33 

S.  Smith,  Capital 

666.67 

There  are  other  ratios  in  which  partners  share  losses  and  gains  and 
in  each  case  the  agreement  between  partners  must  be  complied  with 
strictly. 

Case  III. — In  some  partnerships,  while  it  is  desired  that  the  members 
of  the  firm  shall  share  in  profits  and  losses  equally,  yet  it  is  nevertheless 
felt  that  differences  in  contributions  should  be  suitably  recognized. 
One  way  of  recognizing  such  difference  is  by  allowing  one  partner  a 
greater  salary  than  the  other.  Another,  and  this  especially  in  cases 
where  the  capital  investments  are  unequal,  is  to  allow  interest  on  invest- 
ments, say  at  6%,  before  dividing  the  profits  for  the  period.  If  in  Case 
I  the  profits  were  to  be  divided  equally,  after  allowing  6%  on  the  invest- 
ments of  the  partners,  the  following  entry  would  result: 

Date 
Interest  on  Partners'  Investments    $360 .  00 

B.  Brown,  Drawing  $240.00 

S.  Smith,  Drawing  120.00 

6%  interest  on  investments  for  the  year. 

The  student  should  note  that  instead  of  charging  ordinary  interest 
account,  a  new  account  is  introduced.    This  procedure  is  in  accordance 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    261 

with  the  doctrine  of  accountants,  namely,  that  whenever  possible  the 
titles  of  accounts  should  clearly  indicate  their  nature.  Moreover,  it 
is  desirable  that  we  separate  the  ordinary  conmiercial  interest  from 
this  "  family  "  interest,  as  it  may  be  styled. 

Now  what  shall  be  done  with  the  loss  to  the  business  of  $360.00, 
due  to  the  credits  carried  to  the  partners'  accounts?  As  a  loss  it  must 
be  written  off  to  Profit  and  Loss  account  before  dividing  the  net  profit 
for  the  period  under  review.  This  is  accompHshed  by  the  following 
entry: 

Profit  and  Loss  $360.00 

Interest  on  Partners'  Investments  $360 .  00 

To  transfer  loss  shown  by  the  Interest  on  Partners'  Investments 
account,  to  P.  and  L.  account. 

It  now  becomes  necessary  to  divide  the  net  profit  among  the  part- 
ners. This  amount  is  $1,640.00  ($2,000.00  less  $360.00).  The  follow- 
ing entry  is  now  in  order: 

Profit  and  Loss  $1 ,640 .  00 

B.  Brown,  Capital  $820.00 

S.  Smith,  Capital  820.00 

To  close  the  P.  and  L.  account. 

More  difficult  cases  of  division  of  profit  between  partnerships  occur, 
of  course.  For  examples  of  such  transactions,  the  student  is  referred 
to  "  Elements  of  Accounting,"  pages  93-102,  and  to  other  accounting 
texts. 

Case  IV. — The  student  has  already  learned  that  in  partnership 
accounting  each  partner  is  likely  to  have  two  accounts,  one  to  show 
his  investment  and  the  other  his  drawings.  His  drawing  account 
records  not  only  the  withdrawal  from  the  business,  but  also  any  charges 
and  credits  during  the  year  affecting  his  account.  It  is  customary 
to  "  close  "  the  drawing  account  when  the  books  are  closed.  This 
procedure  consists  simply  of  transferring  the  balance  shown  by  the 
drawing  account  to  the  investment  or  capital  account.  Thus,  if  the 
accounts  of  Messrs.  Brown  and  Smith  appeared  as  follows: 

B.  Brown,  Capital  S.  Smith,  Capital 


19— 

Jan.  IJl  $4,000.00 


19— 

Jan.  IJl  $2,000.00 


252 


BOOKKEEPING  AND  ACCOUNTING 
B.  Brown,  Drawing 


19— 

Aug.  8 

Cash 

C.B. 

8 

$100.00 

Nov.  15 

Cash 

C.B. 

12 

75.00 

S.  Smith, 

Drawing 

19— 

July  12 

Cash 

C.B.  4 

$550.00 

Aug.  10 

Cash 

C.B.8 

350.00 

21 

Mdse. 

S.  14 

12.00 

Dec.    1 

Cash 

C.B.  16 

50.00 

after  determining  that  Mr.  Brown  was  entitled  to  $240.00  interest  and 
Mr.  Smith  to  $120.00,  we  would  make  the  proper  entry,  as  previously 
shown,  and  the  drawing  accounts  would  then  appear  as  follows: 


B.  Brown, 

Drawing 

19— 

Aug.     8    Cash 

Nov.   15    Cash 

C.B.    8      $100.00 
C.B.  12          75.00 

19— 

Dec.  31      Int. 

J14 

$240.00 

S.  Smith, 

Drawing 

19— 

19— 

July    12 

Cash 

C.B.    4    $550.00 

Dec.  31      Int. 

J14 

$120.00 

Aug.    10 

Cash 

C.B.    8      350.00 

21 

Mdse. 

S.       14        12.00 

Dec.      1 

Cash 

C.B.  16        50.00 

The  distribution  of  the  net  profit  ($1,640.00)  would  now  be  reflected 
in  the  drawing  accounts: 

B.  Brown,  Drawing 


19— 

19— 

Aug. 

8 

Cash 

C.B.8 

$100.00 

Dec.  31 

Int. 

J14 

$240.00 

Nov. 

15 

Cash 

C.B.12 

75.00 

31 

Profit 

J14 

820.00 

PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    253 


S.  Smith, 

Drawing 

19— 

19— 

July 

12 

Cash 

C.B.  4 

$550.00 

Dec.  31      Int.       J14 

$120.00 

Aug. 

10 

Cash 

C.B.  8 

350.00 

31      Profit    J14 

820.00 

21 

Mdse. 

S.     14 

12.00 

Dec. 

1 

Cash 

C.B.16 

50.00 

Though  it  is  perfectly  proper  to  leave  the  drawing  accounts  as 
they  appear,  most  bookkeepers  would  transfer  the  balance  of  these 
accounts  to  the  corresponding  capital  accounts  by  means  of  appropriate 
Journal  entries: 

Dec.  31, 19— 

B.  Brown,  Drawing  $885.00 

B.  Brown,  Capital  $885 .  00 

To  transfer  the  balance  shown  by  Mr. 
Brown's  Drawing  account  to  his  Capital 
account. 


Dec.  31,  19— 

S.  Smith,  Capital  $22.00 

S.  Smith,  Drawing  $22.00 

To  transfer  the  balance  shown  by  Mr. 
Smith's  Drawing  account  to  his  Capital 
account. 


The  student  should  note  that,  whereas  in  Mr.  Brown^s  case  the 
transferring  of  the  drawing  account  to  the  capital  account  increased 
Mr.  Brown's  investment  in  the  business,  the  similar  transfer  in  Mr. 
Smith's  case  reduced  the  latter's  investment.  Why  is  this  so?  Because 
in  Mr.  Smith's  case  the  amount  withdrawn  by  him  during  the  year 
exceeded  the  total  of  the  interest  allowed  him  on  his  investment,  plus 
his  share  of  the  net  profit. 

The  final  step  in  closing  the  accounts  of  the  partners  consists  of 
ruling  off  the  accounts.  When  this  step  has  been  accompHshed  they 
should  appear  as  follows: 


254 


BOOKKEEPING  AND  ACCOUNTING 
B.  Brown,  Capital 


19— 
Dec.  31 

NetCap.2           $4,885.00 

19— 
Jan.    1 
Dec.  31 

Drawing 
Net  Cap. 

Jl 
J15 

$4,000.00 
885.00 

$4,885.00 

$4,885.00 

B.  Brown 

19— 
Jan.    1 

Drawing 

$4,885.00 

19— 
Aug.     8 
Nov.   15 
Dec.    31 

Cash     C.B.  S      $100.00 
Cash     C.B.12         75.00 
Cap.           J15        885.00 

19— 
Dec.  31 
31 

Int. 
Profit 

J14 
J14 

$240.00 
820.00 

$1,060.00 

$1,060.00 

S.  Smith 

,  Capital 

19— 
Dec.  31 
31 

Drawing     J15  $     22.00 
NetCap.2             1,978.00 

19— 
Jan.  1 

Net  Cap. 

Jl 

$2,000.00 

$2,000.00 

$2,000.00 

S.  Smith, 

19— 
Jan.  2 

Drawing 

$1,978.00 

19— 
July  12 
Aug.  10 
21 
Dec.    1 

Cash         C.B.  4  $550.00 
Cash         C.B.  8    350.00 
Mdse.       S.     14      12.00 
Cash         C.B.16      50.00 

19— 

Dec.  31 
31 
31 

Int. 

Profit 

Capital 

J14 
J14 
J15 

$120.00 

820.00 

22.00 

$962.00 

$962.00 

2  Red 

ink. 

PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    255 

Questions 

1.  What  is  meant  by  "  closing  entries  for  partnerships  "? 

2.  What  very  important  problem,  absent  when  the  books  of  a  sole  pro- 
prietorship are  closed,  arises  in  "  closing  "  partnership  books? 

3.  How  should  the  profits  of  a  partnership  be  divided?    The  losses? 

4.  How  often  should  the  books  of  a  partnership  be  closed? 

5.  Should  profits  be  transferred  to  the  drawing  account  or  to  the  capital 
account?    Why? 

6.  How  should  the  drawing  account  be  closed? 

7.  Suggest  some  equitable  means  of  recompensing  a  partner  whose  capital 
investment  is  much  larger  than  his  partner's,  but  whose  share  of  the  profits 
is  only  equal  to  his  partner's  share. 

Exercise  46A 

Thomas  Canfield,  a  manufacturer  conducting  business  imder  his  own  name, 
takes  his  foreman  into  partnership  with  him,  and  changes  the  firm  name  to 
T.  Canfield  &  Co.  The  foreman  does  not  contribute  any  capital,  but  he  is  to 
receive  10%  of  the  net  profits  each  year.  At  the  end  of  the  first  year  the  books 
show  a  net  loss  of  $1,800.00.    How  shall  this  loss  be  borne?    Why? 

Exercise  46B 

Jones  invested  $8,000.00  and  Riley  invested  $2,000.00.  How  should  a 
profit  of  $3,500.00  be  divided  between  them? 

Exercise  46C 
How  should  Messrs.  Jones  &  Riley  (Exercise  455)  divide  a  loss  of  $3,500.00? 

Exercise  46D 

In  Case  I,  page  249,  assume  that  Messrs.  Brown  &  Smith's  books  showed  a 
net  profit  of  $4,000.00  on  December  31,  19 — .  Show  the  entry  to  adjust  this 
profit  if: 

(o)  There  was  no  agreement  as  to  how  profits  and  losses  were  to  be  divided. 

(6)  Profits  and  losses  were  to  be  divided  according  to  investments. 

Exercise  46E 

In  Case  III,  page  250,  assume  that  Messrs.  Brown  &  Smith  were  allowed 
interest  at  5%  instead  of  at  6%.  Show  the  entries  required  to  close  their 
books.    Also  show  their  capital  and  drawing  accounts  after  closing. 


256 


BOOKKEEPING  AND  ACCOUNTING 


47.  Dissolution  of  Partnership 

In  case  of  a  sole  proprietorship,  when  the  owner  decides  to  give  up 
business,  he  tries  to  hquidate  or  pay  off  all  his  liabilities,  convert  all 
his  assets  into  cash,  and  then  retires.  If  his  books  have  been  kept 
correctly,  every  account  will  be  closed,  including  the  cash  account  and 
the  proprietor's  account.  In  the  case  of  a  partnership,  such  entries 
for  dissolution  are  necessitated  whenever  a  situation  arises  requiring 
that  the  partnership  be  dissolved.  Dissolution  is  necessary  when  the 
period  for  which  the  partnership  was  originally  organized  terminates, 
or  upon  the  death  of  an  individual  partner,  or  for  a  number  of  other 
reasons,  discussed  more  fully  in  texts  on  the  law.  These  law  texts 
also  discuss  the  legal  steps  which  are  necessary  at  such  times.  We  shall 
consider  a  number  of  situations  in  this  connection. 

Let  us  assume  that  Messrs.  Brown  and  Smith  decide  to  give  up 
business  and  that  their  books,  immediately  after  closing,  contain  the 
following  balances: 

December  31,  19 — 


Assets: 

Liabilities: 

Cash 

$3,000.00 

Accts.  Payable 

$2,387.00 

Notes  Receivable 

5,000.00 

Notes  Payable 

5,000.00 

Accts.  Receivable 

4,200.00 



Mdse.  Inventory 

1,600.00 

Total  Liabilities 

$7,387.00 

Expense  Inventory 

100.00 

Capital: 

Fixtures 

350.00 

B 

Brown 

$4,885.00 

S. 

Smith 

1,978.00 

$14,250.00 

$14,250.00 

Case  L — If  S.  Smith  retires  from  the  business  and  receives  in  pay- 
ment of  his  interest,  $1,978.00  in  cash,  a  simple  entry  converts  the 
partnership  into  a  sole  proprietorship : 

$1,978.00 

$1,978.00 


S.  Smith,  Capital 
Cash 


Had  Mr.  Smith  received  $978.00  cash  and  the  balance  in  a  promissory 
note,  signed  by  Mr.  Brown,  the  following  entry  would  have  been  made 
instead  of  the  first  one  shown  above: 


S.  Smith,  Capital 
Cash 
Notes  Payable 


$1,978.00 


$    978.00 
1,000.00 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    257 

Case  //.—If  Mr.  Brown  had  paid  Mr.  Smith  $2,300.00  cash,  instead 
of  only  $1,978.00,  several  entries  suggest  themselves  as  solutions: 

S.  Smith,  Capital  $1,978.00 

Profit  and  Loss  322.00 

Cash  $2,300.00 

or,  S.  Smith,  Capital  $1,978.00 

B.  Brown,  Capital  322.00 

Cash  $2,300.00 

or,  S.  Smith,  Capital  $1,978.00 

Goodwill  322.00 

Cash  $2,300.00 

The  first  of  these  three  entries  is  the  simplest.  It  merely  gives 
expression  to  the  fact  that  if  Mr.  Brown  paid  $2,300.00  to  cancel  an 
interest  of  $1,978.00,  he  suffered  a  loss  of  the  difference,  $322.00.  The 
second  entry  recognizes  the  same  fact,  but  instead  of  charging  Profit 
and  Loss  account,  at  once  reduces  Mr.  Brown's  account  by  the  same 
amount.  The  third  entry,  which  as  yet  is  probably  not  understood  by 
most  readers,  is  the  one  which  is  probably  the  best.  It  recognizes  the 
economic  doctrine  that,  as  a  result  of  every  transaction,  equal  values 
are  received  and  given.  Therefore,  if  Mr.  Brown  saw  fit  to  pay 
$2,300.00  for  Mr.  Smith's  share  in  the  business,  Mr.  Smith  relinquished 
something  which  was  worth  $2,300.00  to  the  business.  But  how  can 
an  account  which  shows  a  credit  of  only  $1,978.00  be  really  worth 
$2,300.00?  The  question  introduces  us  to  the  interesting  and  some- 
what diflScult  problem  of  "  good  will." 

Good  Will 

It  is,  of  course,  out  of  the  question  to  enter  into  a  complete  dis- 
cussion of  the  subject  of  Good  Will.  The  texts  on  Law,  texts  on 
Accounting  and  special  texts  on  Good  Will  will  furnish  the  ambitious 
student  with  fuller  information  on  the  subject.  It  is  sufficient  for  our 
present  purpose  that  we  recognize  the  fact  that,  when  an  estabUshed 
business  is  sold,  much  more  than  the  physical  merchandise  and  fixtures 
are  transferred  by  the  seller  to  the  buyer.  There  is  also  frequently 
transferred  a  "  trade  "  or  ^'  custom,"  by  which  is  meant  that  customers 
have  acquired  the  habit  of  deaUng  in  the  place  because  they  felt  that 
they  were  receiving  proper  treatment  there,  and  will  continue  to  deal 
with  the  organization  even  after  the  old  proprietors  have  left  it.     This 


258  BOOKKEEPING  AND  ACCOUNTING 

probability  that  trade  will  continue,  despite  the  change  in  proprietor- 
ship, is  worth  something,  and  the  price  paid  for  the  profits  that  will 
probably  be  reaUzed  as  a  result  of  such  an  established  trade  is  the  pur- 
chase of  what  is  technically  known  as  good  will.  From  one  point  of 
view,  then,  good  will  may  be  regarded  as  the  excess  of  purchase  price 
over  replacement  value.  For  example,  if  $3,000.00  were  paid  for  a 
business,  which  could  physically  be  replaced  for  $2,000.00,  $1,000.00 
would  be  paid  for  that  intangible  something  which,  it  is  believed,  will 
result  in  proiSts  to  the  buyer. 

Now  that  we  reaUze  the  nature  of  good  will,  it  is  also  necessary  to 
know  how  to  ascertain  it.  Frequently,  in  practice,  the  price  is  fixed 
by  hagghng  rather  than  by  scientific  computation.  The  methods  of 
determining  the  value  of  good  will  scientifically  cannot  be  discussed 
here,  of  course.  It  is  sufficient  to  know  that  the  bookkeeper  simply 
gives  effect  in  his  entries  to  the  amoimt  of  good  will  involved  in  any 
given  transaction. 

Case  III. — It  is  just  as  probable  that  Mr.  Smith,  instead  of  receiving 
$2,300.00  for  his  share  in  the  business  of  Brown  &  Smith,  agreed  to 
reUnquish  his  rights  upon  receiving  less  than  the  amount  shown  by 
his  capital  account.  Thus,  let  us  consider  what  entries  are  necessary 
when  Mr.  Smith  retires,  upon  accepting  $1,800.00  in  cash,  in  full  for  his 
interest  in  the  business.    An  entry  of  the  following  form  suggests  itself: 

S.  Smith,  Capital  $1,978 .  GO 

Cash  $1,800.00 

"?"  178.00 

It  is  readily  seen  that  Mr.  Smith  has  lost  $178.00  which,  on  the  other 
hand,  is  a  gain  to  Mr.  Brown,  who  is  now  sole  proprietor  of  the  business. 
To  what  account  should  this  $178.00  be  credited?  Some  favor  Profit 
and  Loss,  on  the  ground  that  it  represents  a  profit  to  the  business. 
Others  beheve  that  Mr.  Brown's  account  should  at  once  be  credited 
with  the  difference,  holding  that,  inasmuch  as  he  is  the  sole  proprietor, 
his  account  should  show  the  difference  between  assets  ($12,450.00) 
and  habilities  ($7,387.00)  or  $5,063.00.  We  favor  the  carrying  of  this 
profit  directly  to  Mr.  Brown's  account  and  therefore  the  following  entrj'' 
should  be  made: 

S.  Smith,  Capital  $1,978 .  00 

Cash  $1,800.00 

B.  Brown,  Capital  178 .  00 

Paid  off  Mr.  Smith  by  giving 
him  $1,800.00  in  cash  for  his 
interest  in  the  business. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    259 

A  logical  minded  student  might  feel  that  instead  of  crediting  Profit 
and  Loss  or  Mr.  Brown's  account,  some  other  account  should  be  credited, 
similar  to  the  procedure  when  it  was  decided  to  charge  Good  Will  in 
Case  II.  Though  his  reason  is  logical,  practice  does  not  recognize  a 
credit  account  corresponding  to  good  will,  and  the  entry  approved 
above  is  the  one  which  is  regarded  by  many  accountants  as  the  correct 
one. 

Case  IV. — ^As  a  final  case  under  dissolution,  let  us  assume  that 
Messrs.  Brown  and  Smith  both  decide  to  retire  from  business  as  soon 
as  they  can  wind  up  their  affairs.  As  they  receive  payment  from  their 
customers  the  usual  entry  will  be  made  in  the  Cash  Book,  of  which,  as 
the  student  knows,  the  following  Journal  entry  is  a  type: 

Cash  $ 

Discount  on  Sales  


Customer  (Accts.  Receivable) 


The  entry,  when  Notes  Receivable  are  redeemed,  is  as  follows: 


Cash  $- 

Notes  Receivable 


Let  us  assume  that  Accounts  Payable  and  Notes  Payable  were  both 
paid  in  full,  resulting  in  the  following  type  entries: 

Accounts  Payable        $ 

Cash  $ 


Notes  Payable  $ 

Cash  $ 

If  the  entire  merchandise  was  sold  for  $1,240.00,  the  following  entry 
would  be  necessary: 

Cash  $1,240.00 

Profit  and  Loss  360.00 

Merchandise  Inventory  $1 ,600 .  00 

And,  if  it  is  finall}^  assumed  that  fixtures  were  disposed  of  for  $200.00, 
the  following  entry  therefor  should  be  made: 

Cash  $200.00 

Profit  and  Loss  $150 .  00 

Fixtures  $350.00 

If  the  expense  inventory  is  regarded  as  worthless,  because  the  items 


260  BOOKKEEPING  AND  ACCOUNTING 

constituting  it  cannot  be  disposed  of  for  cash,  another  entry  is  necessary 
to  write  it  off,  so  as  to  show  the  loss  resulting  therefrom : 

Profit  and  Loss  $100 .  00 

Expense  Inventory  $100.00 

At  this  point  let  us  assume  the  following  Trial  Balance,  based  upon 
the  assumption  that  the  Notes  Receivable  were  redeemed  in  full 
and  that  all  the  customers  paid  up  in  full,  less  discounts  amounting 
to  $150.00: 

Trial  Balance  (Date) 


Cash 

$6,103.00 

Profit  and  Loss 

610.00 

Discount  on  Sales 

150.00 

B.  Brown,  Capital 

$4,885.00 

S.  Smith,  Capital 

1,978.00 

$6,863.00 

$6,863.00 

Inasmuch  as  all  assets  have  been  converted  into  cash  and  all  Habil- 
ities  have  been  paid,  we  are  about  ready  to  distribute  the  cash  on  hand, 
so  as  to  cancel  Mr.  Smith's  and  Mr.  Brown's  respective  interests  in 
the  concern.  Before  doing  so,  it  is  necessary  to  transfer  the  Discount 
on  Sales  to  Profit  and  Loss  account  and  to  divide  the  net  loss,  shown 
by  the  Profit  and  Loss  account,  equally  between  the  partners.  The 
following  entry  is  for  the  purpose  of  transferring  the  Discount  on  Sales 
account  to  the  Profit  and  Loss  account : 

Profit  and  Loss  $150.00 

Discount  on  Sales  $150 .  00 

The  Profit  and  Loss  account  is  closed  by  means  of  the  following 
entry:  , 

B.  Brown,  Capital  $380.00 

S.  Smith,  Capital  380.00 

Profit  and  Loss  $760 .  00 

A  Balance  Sheet  of  the  books  of  Brown  and  Smith  would  now  appear 
as  follows: 

Assets:  Capital: 

Cash                     $6,103.00                       B.Brown  $4,505.00 

S.Smith  1,598.00 

$6,103.00  $6,103.00 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    261 

When  the  cash  which  is  on  hand  is  distributed  to  Messrs.  Brown 
&  Smith,  all  of  the  accounts  which  still  remain  on  the  books  will  dis- 
appear, as  is  evident  from  the  following  entry: 

B.  Brown,  Capital  $4,505 .  00 

S.  Smith,  Capital  1,598.00 

Cash  $6,103.00 

The  books  are  now  absolutely  closed  and  no  balance  exists. 


Questions 

1.  When  a  sole  proprietorship  is  discontinued,  the  final  entry,  which  records 
the  fact  that  the  owner  has  taken  the  balance  of  cash,  closes  all  the  accounts. 
What  effect  has  a  similar  dissolution  on  the  books  of  a  partnership? 

2.  Under  what  conditions  is  a  partnership  terminated? 

3.  If  a  partner  wishes  to  retire  from  business,  how  can  you  ascertain  to  ho\i 
much  he  is  entitled? 

4.  What  adjustment  is  necessary  on  the  books  of  the  firm,  when  a  retiring 
partner  is  paid  more  than  the  balance  shown  by  his  account? 

5.  What  adjustment  when  such  a  partner  is  paid  less  than  the  balance  of 
his  account? 

6.  Define  good  will. 

Exercise  47A 

Show  the  Journal  entry  in  the  books  of  Brown  &  Smith  (see  Balance  Sheet 
page  256),  if  Mr.  Brown  retired,  receiving  for  his  interest  in  the  business, 
cash  $1,000.00  and  the  firm  note  for  $3,885.00. 

Exercise  47B 

Show  the  Journal  entry  if  Mr.  Brown  had  received  $1,000.00  in  cash;  one  of 
the  notes  which  the  firm  owned  and  included  in  its  Notes  Receivable,  $2,500.00, 
indorsed  by  the  firm  to  the  order  of  B.  Brown,  and  accepted  by  him  at  its  face 
value;  balance,  $1,385.00,  the  firm's  own  note,  favor  o''  ^.  Brown,  due  in  six 
months. 

Exercise  47C 

Show  the  Balance  Sheet  of  Brown  &  Smith  (firm  name  retained)  after 
giving  effect  to  the  transactions  of  Exercise  47J5. 

Exercise  47D 

Show  the  Journal  entry  if  Mr.  Brown  had  received  $1,000.00  in  cash  and  a 
$4,500.00  note  from  the  firm,  drawn  to  his  order,  in  full  settlement  of  his  account. 


262 


BOOKKEEPING  AND  ACCOUNTING 


Exercise  47E 

Show  the  entry  if  Mr.  Brown  had  accepted  in  full  settlement  of  his  account, 
cash,  $1,000.00,  and  the  firm's  note  in  his  favor  for  $3,000.00. 

Exercise  47F 

The  following  exhibit  shows  the  condition  of  a  firm  engaged  in  the  whole- 
sale drug  business: 

Robert  M.  Kingsley  &  Co. 
Balance  Sheet  as  of  December  31,  19 — 


Assets: 

Liabilities: 

Cash 

$18,500.00 

Accounts  Payable 

$14,635.00 

Accounts  Receivable 

40,310.00 

Notes  Payable 

25,000.00 

Notes  Receivable 

2,000.00 

Loans  Payable 

10,000.00 

Loans  Receivable 

500.00 

Inventory 

29,560.00 

Total  T/iabiHties 

49,635.00 

Fixtures 

3,825.00 

Capital: 

Delivery  Equipment ' 

7,240.00 

Robert  M.  Kingsley 

30,000.00 

Samuel  H.  Sanger 

12,300.00 

Woodrow  R.  Taft 

10,000.00 

$101,935.00 

$101,935.00 

If,  at  this  time,  Mr.  Kingsley  decided  to  retire  from  business,  and  accepted 
in  full  settlement  of  his  account,  $5,000.00  in  cash,  and  five  notes  of  $5,000.00 
each,  due  in  4,  6,  8,  10  and  12  months,  respectively,  show  the  necessary  entry. 

Exercise  47G 

State  what  changes  would  occur  in  the  Balance  Sheet,  shown  above,  after 
Mr.  Kingsley  had  retired. 

Exercise  47H 

Show  the  entry  to  pay  off  Mr.  Kingsley,  if  he  received  the  same  amount 
of  cash  but  the  five  notes  were  for  $6,000.00  each. 

Exercise  471 
Now  show  the  entry  if  the  five  notes  were  for  $4,000.00  each. 

'  Automobiles,  extra  tires,  other  supplies  for  machines,  oil,  etc. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    263 


48.  Admission  of  a  New  Partner 

We  wish  to  conclude  our  discussion  of  bookkeeping  for  partnerships 
by  presenting  the  entries  necessary  when  a  partner  is  admitted.  Legally, 
the  admission  of  a  partner  means  the  creating  of  a  new  organization; 
hence  the  same  need  of  a  carefully  drawn  agreement.  From  the 
accountant's  point  of  view  it  is  simply  required  that  the  investment  of 
a  new  partner,  together  with  his  resulting  interest  in  the  organization, 
be  shown. 

Case  I. — Let  us  assume  that  Mr.  B.  Brown  is  in  business  for  himself 
and  that  his  net  capital  is  reflected  by  the  following  Balance  Sheet: 

Balance  Sheet  of  B.  Brown  as  of  Dec.  31,  19 — 


Cash 

$3,000.00 

Notes  Receivable 

5,000.00 

Accounts  Receivable 

4,200.00 

Mdse.  Inventory 

1,600.00 

Expense  Inventory 

100.00 

Fixtures 

350.00 

$14,250.00 

Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
B.  Brown 


$2,387.00 
5,000.00 

$7,387.00 

6,863.00 
$14,250.00 


He  decides  to  admit  F.  Frank  at  this  time  as  a  partner,  upon  the 
latter's  investment  in  the  business  of  $5,000.00  cash. 

Of  course,  it  is  necessary  to  draw  up  a  proper  form  of  partnership 
agreement.  Sometimes,  also,  it  is  desired  that  the  books  of  the  old 
concern  be  discontinued  and  a  new  set  of  books  opened,  but  such  a 
step  is  not  at  all  necessary.  It  is  suflicient  that  the  following  entry 
be  made: 

Date 
I  have  this  day  admitted  F.  Frank  into  partnership 
with  rae  under  the  firm  name  of  Brown  &  Co.,  as  per 
Articles  of  Agreement  executed  this  day.    Mr.  Frank's 
investment  consisted  qf  $5,000.00  cash: 
Cash  $5,000.00 

F.  Frank,  Capital  $5,000 .  00 

As  the  student  already  knows,  in  the  absence  of  a  specific  agreement 
to  the  contrary,  Mr.  Frank  would  share  in  one-half  the  losses  and  gains, 


264 


BOOKKEEPING  AND  ACCOUNTING 


despite  the  fact  that  his  investment  is  considerably  less  than  Mr. 
Brown's.  Some  bookkeepers  would  then  refer  to  Mr.  Frank  as  an 
"  equal  partner  "  because  of  the  fact  that  he  would  have  the  same  in- 
terest in  the  losses  and  gains  as  Mr.  Brown. 

Many  consider  it  better  to  restrict  the  term  "  equal  partner  "  to 
cases  involving  equaUty  of  capital  investments  and  equaUty  in  division 
of  profits  and  losses.  Though  this  point  is  by  no  means  fixed,  we 
shall  restrict  the  term  "  equal  partner  ^'  to  copartners  whose  original 
capital  investments  and  whose  sharing  in  profits  and  losses  are  alike. 
The  Balance  Sheet,  at  this  point,  would  be  as  follows: 

Balance  Sheet  of  Brown  &  Co.  as  of  Dec.  31,  19 — 


Assets: 

Cash 

$8,000.00 

Notes  Receivable 

5,000.00 

Accounts  Receivable 

4,200.00 

Mdse.  Inventory 

1,600.00 

Expense 

100.00 

Fixtures 

350.00 

$19,250.00 

Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
B.  Brown 
F.  Frank 


$2,387.00 
5,000.00 


7,387.00 


6,863.00 
5,000.00 

$19,250.00 


Case  II. — Had  Mr.  Brown  admitted  Mr.  Frank  into  an  equal 
partnership  with  him,  upon  Mr.  Frank's  payment  to  Mr.  Brown  per- 
sonally of  $5,000.00,  then  the  resulting  entry  would  be  as  follows: 

Date 
I  have  this  day  admitted  F.  Frank  into  equal  partner- 
ship with  me,  under  the  firm  name  of  Brown  &  Company, 
as  per  agreement  executed  this  day.  The  following  entry 
is  for  the  purpose  of  transferring  to  him  one-half  my 
interest  in  the  business: 
B.  Brown,  Capital  $3,431 .  60 

F.  Frank,  Capital  $3,431 .  50 

The  student  will  note  that  no  entry  is  made  in  the  books  for  the 
cash  payment  to  Mr.  Brown.  This  is  so  for  the  obvious  reason  that 
the  cash  was  not  received  by  the  business,  but  by  Mr.  Brown,  personally. 
No  matter  what  amount  was  thus  paid  by  Mr.  Frank  to  Mr.  Brown, 
the  entry  shown  above  would  still  be  made,  because,  so  far  as  the 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    266 


business  is  concerned,  the  contract  was  for  Mr.  Brown  to  divide  his 
interest  in  the  business  into  two  equal  parts,  one  to  be  retained  by 
him,  the  other  to  be  transferred  to  the  partner,  Mr.  Frank.  The  Balance 
Sheet,  at  this  point,  would  be  as  follows: 

Balance  Sheet  of  Brown  &  Co.  as  of  Dec.  31,  19 — 


ssets: 
Cash 

$3,000.00 

Notes  Receivable 

5,000.00 

Accounts  Receivable 

4,200.00 

Mdse.  Inventory- 

1,600.00 

Expense 

100.00 

Fixtures 

350.00 

$14,250.00 

Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
B.  Brown 
F.  Frank 


$2,387.00 
5,000.00 

7,387.00 


3,431.50 
3,431.50 

$14,250.00 


Case  III. — ^As  a  third  case,  let  us  consider  the  entry  necessary  if 
Mr.  Frank  is  admitted  as  an  equal  partner  by  paying  into  the  busi- 
ness enough  cash  to  give  him  a  one-half  interest  in  the  resulting  net 
capital.  As  Mr.  Brown's  investment  is  $6,863.00,  Mr.  Frank  would 
also  invest  $6,863.00,  and  then  his  account  would  be  credited  with  one- 
half  the  total  capital  or  one  half  of  $13,726.00.  The  entry  would  be 
as  follows: 

Date 
I  have  this  day  admitted  Mr.  F.  Frank  into  equal 
partnership  with  me,  under  the  firm  name  of  Brown  & 
Co.,  as  per  agreement  executed  this  day.    Mr.  Frank's  in- 
vestment consisted  of  cash  $6,863.00: 
Cash  $6,863.00 

F.  Frank,  Capital  $6,863 .  00 

The  student  should  easily  be  able  to  prepare  for  himself  the  Balance 
Sheet  as  it  would  appear  at  this  time. 

Case  IV. — We  have  already  agreed  to  restrict  the  term  "  equal  part- 
ner "  to  the  condition  which  obtains  when  partners  have  similar  invest- 
ments and  share  equally  in  profits  and  losses.  Let  us  suppose,  now, 
that  Mr.  Brown  admitted  Mr.  Frank  into  equal  partnership  with  him 
upon  the  latter's  investment  in  the  business  of,  not  $6,863.00,  but 


266  BOOKKEEPING  AND  ACCOUNTING 

only  $6,000.00.  In  other  words,  Mr.  Brown  is  willing  to  give  Mr. 
Frank  one  half  of  $6,863.00  (the  old  capital)  plus  one  haK  of  $6,000.00 
(the  newly  contributed  capital)  or  one  half  of  $12,863.00.  Why  should 
he  be  willing  to  give  Mr.  Frank  a  capital  interest  of  $6,431.50  for 
$6,000.00.  Several  answers  suggest  themselves.  Possibly  $6,000.00  in 
cash  is  worth  over  $6,400.00  of  notes,  accounts  and  merchandise;  or, 
it  is  wise  to  give  this  bonus  to  Mr.  Frank  because  his  services  to  the 
organization  may  prove  profitable.  At  any  rate,  the  following  entry 
results: 

Date 
I  have  this  day  admitted  Mr.  F.  Frank  into  equal 
partnership  with  me,  under  the  firm  name  of  Brown  &  Co., 
as  per  Articles  of  Agreement  executed  this  dsLj.    Mr. 
Frank's  investment  consisted  of  $6,000.00  in  cash. 
Cash  $6,000.00 

B.  BrowTi,  Capital  431.50 

F.  Frank,  Capital  $6,431 .  50 

The  student  should  note  that,  by  charging  Mr.  Brown's  account 
with  $431.50,  we  reduce  his  capital  balance  to  $6,431.50,  the  amount 
credited  to  the  account  of  the  new  partner,  Mr.  Frank. 

Case  V. — As  a  final  exercise  in  this  series,  let  us  assume  that  Mr. 
Frank  contributed  $7,000.00  in  cash  to  the  business  for  an  equal  part- 
nership in  it.  In  this  case,  tv/o  solutions  suggest  themselves.  One 
of  these  considers  that  the  excess  of  $137.00  is  to  be  divided  equally 
between  the  two  partners  so  as  to  result  in  equal  capital  investments. 
This  is  in  accordance  with  the  principle  which  was  followed  in  Case 
IV,  above.  The  other  solution  regards  the  $7,000.00  paid  for  a  one- 
half  interest  in  the  business,  as  truly  representative  of  a  one-half  interest, 
and  thereby  impUes  that  the  business  of  Mr.  B.  Brown,  though  shown  as 
worth  only  $6,863.00,  is  really  worth  $7,000.00.  We  will  show  both 
solution^: 

Solution  (o): 

Date 
I  have  this  day  admitted  Mr.  F.  Frank  into  equal 
partnership  with  me,  under  the  firm  name  of  Brown  & 
Co.,  as  per  Articles  of  Agreement  executed  this  day.    Mr. 
Frank's  investment  consisted  of  $7,000.00  in  cash: 
Cash  $7,000.00 

F.  Frank,  Capital  $6,931 .  50 

B.  Brown,  Capital  68.50 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    267 


The  student  will  readily  observe  that  by  crediting  Mr.  Brown's 
account  with  $68.50,  his  credit  balance  is  increased  to  $6,931.50,  exactly 
equal  to  the  credit  sho\\Ti  in  the  new  partner's  account. 


Solution  (6): 


Date 


I  have  this  day  admitted  Mr.  F.  Frank  into  equal 
partnership  with  me,  under  the  firm  name  of  Brown  & 
Co.,  as  per  Articles  of  Agreement  executed  this  day.  Mr. 
Frank's  investment  consisted  of  $7,000.00  in  cash.  Good 
will  amounting  to  $137.00  has  been  allowed  me  upon 
appraisal  of  the  business: 
Goodwill  $137.00 

B.  Brown,  Capital  $137 .  00 

Cash  $7,000.00 

F.  Frank,  Capital  $7,000.00 

It  is  easily  seen  that  Mr.  Brown's  net  capital  is  now  exactly  equal 
to  Mr.  Frank's  net  capital.  It  is  the  opinion  of  the  author  that  solu- 
tion (6)  is  more  popular,  though  the  first  solution  is  undoubtedly  also 
correct.  There  is  this  to  be  said,  however,  in  favor  of  the  second 
solution,  namely,  that  Mr.  Frank  would  probably  favor  having  his 
account  credited  with  $7,000.00,  while  Mr.  Brown's  is  increased  to 
$7,000.00,  rather  than  to  have  his  own  account  reduced  by  $68.50. 

The  Balance  Sheet,  at  this  point,  assuming  that  solution  (6)  instead 
of  solution  (a)  were  employed,  would  be  as  follows: 

Balance  Sheet  of  Brown  &  Co.  as  of  December  31,  19 — 


Assets: 

Cash 

$10,000.00 

Notes  Receivable 

5,000.00 

Accounts  Receivable 

4,200.00 

Mdse.  Inventory 

1,600.00 

Expense 

100.00 

Fixtures 

350.00 

Good  WiU 

137.00 

$21,387.00 

Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
B.  Brown 
F.  Frank 


$2,387.00 
5,000.00 

7,387.00 


7,000.00 
7,000.00 

$21,387.00 


It  is  not  intended  that  the  student  should  beUeve  that  every  pos- 
sible situation  which  arises  in  connection  with  the  admission  of  a  part- 


268 


BOOKKEEPING  AND  ACCOUNTING 


ner  has  been  discussed.  But  it  is  confidently  believed  that  enough 
has  been  presented  to  enable  the  conscientious  student  to  solve  the 
average  problems  which  will  confront  him  in  ordinary  practice.  More 
advanced  situations  are  discussed  in  general  and  special  accounting  texts. 

Questions 

1.  Why  is  the  entry  for  the  admission  of  a  partner  similar  to  the  opening 
entry  for  partnerships? 

2.  If  a  partner  is  admitted,  what  entry  should  be  made  in  the  books  for  his 
investment? 

3.  What  adjustment  is  necessary  when  the  incoming  partner  receives 
a  greater  interest  than  that  represented  by  the  amount  of  his  investment? 

4.  What  adjustment  if  he  receives  a  smaller  interest? 

5.  Define  equal  partner. 

6.  A  firm  consists  of  A  and  B,  equal  partners,  each  of  whom  has  a  $10,000.00 
interest  in  the  firm.  They  admit  their  bookkeeper  into  partnership  with  them, 
upon  his  contributing  $1,000.00  to  the  capital  of  the  business.  No  agreement 
is  made  regarding  the  sharing  of  profits  and  losses.  At  the  end  of  the  first 
year,  a  profit  of  $6,000.00  has  been  earned.  How  much  of  this  profit  belongs 
to  the  new  partner?    Why? 


Exercise  48A 

The  Balance  Sheet  of  Sylvester  R.  Morley,  who  is  in  business  for  himself, 
is  as  follows: 

Balance  Sheet  as  of  December  31,  19 — 


Cash 

$5,080.00 

Accounts  Receivable 

14,740.00 

Notes  Receivable 

700.00 

Merchandise  Inventory 

4,200.00 

Automobile 

2,500.00 

Furniture  and  Fixtures 

420.00 

$27,640.00 

Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
S.  R.  Morley,  Cap. 


$5,640.00 
10,000.00 

15,640.00 

12,000.00 
$27,640.00 


At  this  time,  Mr.  Morley  admits  his  salesman,  Mr.  Leon  H.  Arnold,  into 
partnership  with  him.  Mr.  Arnold  invests  $2,500.00  in  cash,  which  amount 
is  to  be  added  to  the  assets  of  the  organization,  the  name  of  which  has  been 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    269 

changed  to  Morley  and  Arnold.    Messrs.  Morley  and  Arnold  are  to  share 
profits  and  losses,  80%  to  Mr.  Morley  and  20%  to  Mr.  Arnold. 
Show  the  Journal  entry  resulting  from  Mr.  Arnold's  investment. 

Exercise  48B 

Show  the  Journal  entry  for  Exercise  48A,  above,  on  the  assumption  that 
the  $2,500.00  which  Mr.  Arnold  invested  was  to  be  taken  by  Mr.  Morley 
personally,  and  kept  by  him,  and  in  return  for  which  he  was  to  transfer  25% 
of  his  own  capital  account  to  Mr.  Arnold. 

Exercise  48C 

Show  the  Journal  entry  which  would  result  from  the  situation  described 
in  Exercise  ^8A,  above,  if,  for  Mr.  Arnold's  investment  of  $2,500.00,  which  sum 
was  to  be  added  to  the  assets  of  the  firm,  Mr.  Arnold's  account  was  to  be  credited 
with  $3,000.00. 

Exercise  48D 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
48A,  above,  if  Mr.  Arnold  were  to  invest  $12,000.00  in  the  business,  which  sum 
was  to  be  added  to  the  assets  of  the  firm,  and  in  return  for  which  he  was  to  receive 
a  one-half  interest  in  the  capital  and  profits. 

Exercise  48E 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
48A,  above,  if  Mr.  Arnold  were  to  invest  $10,000.00  in  the  business,  in  return 
for  which  he  was  to  receive  a  one-half  interest  in  the  total  capital  then  resulting 
($22,000.00)  and  a  one-half  interest  in  the  profits. 

Exercise  48F 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
48i4,  above,  if  Mr.  Arnold  were  to  invest  $10,000.00  in  the  business,  in  return 
for  which  he  was  to  be  credited  with  an  amount  equal  to  Mr.  Morley's  present 
capital  and  to  share  in  one  half  of  the  profits  and  losses. 

Exercise  48G 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
48i4.,  above,  if  Mr.  Arnold  were  to  invest  $15,000.00  in  the  business,  in  return 
for  which  he  was  to  receive  one-half  of  the  combined  net  capital  then  resulting 
($27,000.00)  and  was  to  share  in  one-half  of  the  profits  and  losses. 


270  BOOKKEEPING  AND  ACCOUNTING 


49.  SUMMARY 

Bookkeeping  Unity. — The  student  learned  that  partnership  book- 
keeping did  not  differ  radically  from  the  bookkeeping  for  sole  proprietor- 
ships. The  old  familiar  entries  for  sales  and  purchases,  issuing  and 
redeeming  of  notes,  paying  salaries  and  other  expenses,  still  obtained. 
The  new  features  introduced  consisted  essentially  of:  (a)  the  articles  of 
copartnership;  (b)  opening  entries;  (c)  a  few  so-called  routine  entries; 
(d)  closing  entries;   (e)  dissolutions;  and  (/)  admission  of  partners. 

Articles  of  Copartnership. — Although  formal  agreements  are  not 
essential  to  the  creation  of  partnerships,  experience  suggests  the  advis- 
ability of  not  entering  into  partnership  relations  until  a  carefully  pre- 
pared contract  has  been  signed.  Most  quarrels  are  due  to  misunder- 
standings; partnership  disputes  are  minimized  by  arriving  at  a  clear 
understanding  regarding  the  rights  and  duties  of  the  members  of  the 
firm  before  entering  into  partnership  relations.  It  is  highly  desirable 
that  the  bookkeeper  familiarize  himself  with  the  essential  elements  of 
partnership  law  and  copartnership  agreements,  not  for  the  purpose  of 
drawing  up  such  contracts,  but  so  that  he  may  be  able  to  foresee 
difficulties  before  they  occur,  and,  by  pointing  out  such  weaknesses, 
hav3  them  remedied  while  time  still  remains.  The  agreement,  pre- 
sented on  pages  228-229,  is  solely  for  the  purpose  of  illustrating  a 
type  form.  Practically  each  case  differs  from  every  other  case;  the 
services  of  an  experienced  lawyer  are  therefore  necessary  in  every  case 
where  a  partnership  is  contemplated. 

Opening  Entries. — The  opening  entries  were  found  to  be  very  much 
similar  to  the  opening  entries  for  sole  proprietors.  A  personal  or  draw- 
ing account  was  introduced  for  the  purpose  of  showing  the  withdrawals 
of  the  partners,  and  for  a  few  other  transactions.  Investments  of 
notes  were  specifically  discussed,  and  the  difference  between  practical 
and  examination  usage  pointed  out. 

Routine  Entries. — This  division  served  to  familiarize  the  student 
with  certain  entries  peculiar  to  partnership  bookkeeping,  and  with  some 
not  restricted  to  partnerships.  Among  the  more  important  ones  dis- 
cussed were:  (a)  firm  salaries;  (b)  traveling  expenses;  (c)  accommoda- 
tion notes;  and  (d)  guaranteeing  of  investments. 

Closing  Entries. — Under  this  caption  a  number  of  important  topics 
were  grouped.  These  included  the  division  of  profits,  whether  in 
pursuance  of  specific  agreement  or  in  terms  of  the  general  law  appH- 
cable  to   partnerships,   the   closing  of  the  drawing  account,  and  the 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    271 

problem  involved  in  equitably  dividing  profits  when  investments  are 
different. 

Dissolution. — Dissolution  of  a  partnership  occurs  by  agreement, 
or  by  legal  cause.  We  found  that  the  bookkeeping  for  dissolutions  was 
similar  to  the  winding  up  of  affairs  of  a  sole  proprietorship.  What 
is  necessary  is  to  convert  assets  into  cash,  pay  off  Uabihties,  and 
distribute  the  balance  of  cash.  Interesting  problems  arise  when  a 
retiring  partner  receives  more  or  less  than  the  amount  shown  by  his 
account  in  full  settlement  of  his  interest  in  the  partnership.  In  con- 
nection with  giving  a  partner  more  than  the  book  value  of  his  interest 
in  the  firm,  we  were  introduced  to  the  important  topic  of  good  will. 
Good  will  was  found  to  be  the  excess  of  purchase  price  over  replacement 
value,  a  definition  which  will  be  ampUfied  and  qualified  by  more 
advanced  study. 

Admission  of  a  Partner. — The  admission  of  a  partner  is  legally 
equivalent  to  the  organization  of  a  new  partnership.  Thus  it  is  that 
the  opening  entry  was  found  to  present  no  real  bookkeeping  difficulty. 
The  bookkeeper's  function  is  to  interpret,  in  terms  of  accounts,  the 
agreement  incident  to  the  admission  of  a  new  partner.  But  the  problem 
is  not  as  simple  as  the  statement  might  suggest,  due  to  the  ambiguity 
of  language.  For  example,  he  must  know  what  is  meant  by  an  "  equal 
partner."  Though  there  exists  no  absolute  unity  of  opinion,  we  have 
restricted  the  term  to  imply  equality  in  investment  as  well  as  in  sharing 
of  profits  and  losses.  The  problems  which  were  presented  included 
the  admission  of  a  partner  who  secured  an  interest  in  the  business  equal 
to,  less,  and  more,  than  the  amount  equivalent  to  his  investment.  Still 
another  case  involved  the  securing  of  a  partnership  interest  by  paying 
for  it  to  the  existing  partner  or  owner  personally,  instead  of  con- 
tributing to  the  funds  of  the  business. 

Conclusion. — We  are  now  in  a  position  to  realize  that  the  funda- 
mental principles  of  bookkeeping  which  we  mastered  in  the  first  division 
of  this  text  are  of  sufficient  universality  as  to  apply  alike  to  sole  propri- 
etorships and  to  partnerships.  In  the  next  division,  we  shall  see  that 
these  same  principles  are  also  appUcable  to  corporation  bookkeeping. 

Questions 

1.  Explain  how  it  is  that  partnership  bookkeeping  does  not  differ  essentially 
irom  the  bookkeeping  of  a  sole  proprietorship. 

2.  Why  is  it  advisable  to  have  a  written  agreement  governing  the  relation- 
ship between  partners? 


27^ 


BOOKKEEPING  AND  ACCOUNTING 


3.  Why  should  the  explanations  which  accompany  original  entries  be  abeo- 
lutely  clear  and  complete? 

4.  Assuming  that  the  opening  entry  for  a  partnership  lacked  completeness, 
state  how  you  would  proceed  to  ascertain  the  interest  of  the  partners  in  the  net 
profits  of  the  business. 

5.  Why  should  an  entry  be  made  to  record  the  liability  of  the  firm  as  in- 
dorsers  of  a  note? 

6.  Mention  several  transactions  which  you  believe  to  be  peculiar  to  partner- 
ships. 

7.  Illustrate  the  ambiguity  which  may  result  from  lack  of  absolute  clearness 
in  the  statement  of  conditions  under  which  a  partner  is  admitted  into  the  busi- 
ness. 

8.  A  certain  partnership  agreement  provides  that  Mr.  B,  one  of  the  partners, 
is  to  receive  33f %  of  the  net  profits.  The  results  for  the  year  show  a  net  loss 
of  $600.00.    How  is  Mr.  B.  affected  by  this  loss?    Explain  fully. 

9.  Why  is  interest  frequently  allowed  to  partners  on  their  investments? 
10.  What  is  meant  by  good  will? 

Exercise  49A 


Messrs.  Brody,  Roberts  and  Mason  form  a  partnership.    Mr.  Brody's  invest- 
ment is  shown  by  the  following  Balance  Sheet: 

Robert  Y.  Brody — Balance  Sheet — November  1,  19 — 


Cash 

Merchandise  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 


$4,000.00 
3,200.00 
8,050.00 
1,575.00 

$16,825.00 


Accounts   Payable 
Robert  Y.  Brody,  Cap. 


$1,825.00 
15,000.00 


$16,825.00 


Mr.  Roberts'  investment  is  shown  by  the  following  Balance  Sheet: 
John  M.  Roberts — Balance  Sheet — November  1,  19 — 


Cash 

$5,300.00 

Accounts   Payable 

$2,795.00 

Merchandise  Inventory 

6,200.00 

Loans  Payable 

5,000.00 

Accounts  Receivable 

6,750.00 

John  M.  Roberts,  Cap. 

18,000.00 

Furniture  and  Fixtures 

2,545.00 

Real  Estate 

6,000.00 
$25,795.00 

$25,795.00 

i 

PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    273 

Mr.  Gabriel  Q.  Mason  invests  $10,000.00  in  cash. 

(1)  Show  the  entries  on  the  books  of  the  new  firm  resulting  from  the  fore- 

going investments. 

(2)  show  the  resulting  Balance  Sheet. 


Exercise  49B 

Let  us  assume  that  the  Balance  Sheet  of  Messrs.  Jenkins  &  Hall  as  of  Nov. 
30,  19 — ,  is  as  follows: 

November  30.  19— 


Assets: 

Liabilities: 

Cash 

$3,500.00 

Accounts   Payable 

$3,435.00 

Notes  Receivable 

6,840.00 

Notes  Payable 

4,000.00 

Accounts  Receivable 
Merchandise  Inventory 

3,800.00 
2,670.00 

Total  LiabiUties 

$7,435.00 

Expense  Inventory- 

150.00 

Capital: 

Furniture  and  Fixtures 

475.00 

J.  Jenkins 

5,600.00 

H.Hall 

4,400.00 

$17,435.00 

$17,435.00 

Show  the  Journal  entry  in  the  books  of  Jenkins  &  Hall,  if  Mr.  Hall  retired, 
receiving  for  his  interest  in  the  business,  cash  $1,000.00  and  the  firm  note  for 
$3,400.00. 

Exercise  49C 

Show  the  Journal  entry  in  the  books  of  Jenkins  &  Hall,  if  Mr.  Hall  retired, 
receiving  for  his  interest  in  the  business,  cash  $5,000.00.  (See  Exercise  495, 
above.) 

Exercise  49D 

Show  the  Journal  entry  in  the  books  of  Jenkins  &  Hall,  if  Mr.  Hall  retired, 
receiving  for  his  interest  in  the  business,  cash  $4,000.00.  (See  Exercise  49B, 
above.) 

Exercise  49E 

Show  the  entries  necessary  to  close  the  books  and  pay  off  the  partners  if 
Messrs.  Jenkins  &  Hall  (Exercise  49B)  decided  to  give  up  business.  The 
assets  were  converted  into  cash,  with  the  following  losses:  $150.00  on  Notes 
Receivable  and  $200.00  on  Accounts  Receivable.  The  liabiUties  were  paid  in 
full.  The  balance  on  hand  was  equitably  (not  equally)  distributed  between  the 
members  of  the  firm. 


274 


BOOKKEEPING  AND  ACCOUNTING 


Exercise  49F 

The  Balance  Sheet  of  James  Stanton,  who  is  in  business  for  himself,  is  as 
follows: 

Balance  Sheet — September,  19 — 


Assets: 
Cash 

Accounts  Receivable 
Notes  Receivable 
Merchandise  Inventory 
Furniture  and  Fixtures 


$7,600.00 

12,570.00 

8,900.00 

5,400.00 

875.00 


$35,345.00 


Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
Jamsb  Stanton,  Cap. 


$9,345.00 
6,000.00 

$15,345.00 

20,000.00 
$35,345.00 


At  this  time,  Mr.  Stanton  admits  his  salesman,  Mr.  George  Fahey,  into 
partnership  with  him.  Mr.  Fahey  invests  $5,000.00  in  cash,  which  amount 
is  to  be  added  to  the  assets  of  the  organization,  the  name  of  which  has  been 
changed  to  Stanton  &  Fahey.  Messrs.  Stanton  &  Fahey  are  to  share  profits 
and  losses  in  the  following  proportions:  80%  to  Mr.  Stanton  and  20%  to  Mr. 
Fahey. 

Show  the  entry  resulting  from  Mr.  Fahey's  investment. 


Exercise  49G 

Show  the  entry  for  Exercise  49/^,  above,  on  the  assumption  that  the  $5,000.00 
which  Mr.  Fahey  invested,  was  to  be  taken  by  Mr.  Stanton  personally,  and  kept 
by  him,  and  in  return  for  which  he  was  to  transfer  25%  of  his  own  capital  account 
to  Mr.  Fahey. 

Exercise  49H 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
49F,  above,  if,  for  Mr.  Fahey's  investment  of  $5,000.00,  which  sum  was  to  be 
added  to  the  assets  of  the  firm,  Mr.  Fahey's  account  was  to  be  credited  with 
$7,000.00. 

Exercise  491 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
49F,  above,  if  Mr.  Fahey  were  to  invest  $20,000.00  in  the  business,  which  sum 
was  to  be  added  to  the  assets  of  the  firm,  and  in  return  for  which  he  was  to 
receive  a  one-half  interest  in  the  capital  and  profits. 


PARTNERSHIP  BOOKKEEPING  AND  ACCOUNTING    275 

Exercise  49J 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
49F,  above,  if  Mr.  Fahey  were  to  invest  $15,000.00  in  the  business,  in  return 
for  which  he  was  to  receive  a  one-half  interest  in  the  total  capital  then  result- 
ing ($35,000.00)  and  a  one-half  interest  in  the  profits. 

Exercise  49K 

Show  the  entry  which  would  result  from  the  situation  described  in  Exercise 
49F,  above,  if  Mr.  Fahey  were  to  invest  $25,000.00  in  the  business,  in  return 
for  which  he  was  to  receive  one  half  of  the  combined  net  capital  then  resulting 
($45,000.00)  and  was  to  share  in  one  half  of  the  profits  and  losses. 


PART  V 

CORPORATION  BOOKKEEPING 
AND  ACCOUNTING 

We  are  about  to  learn  how  to  keep  the  hooks  of  cor- 
porations.  In  doing  so,  we  shall  come  across  many 
features  not  hitherto  presented,  hut  we  shall  find  that 
the  principles  of  douhle  entry  hookkeeping  are  of  univer- 
sal application. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING 

We  learned  in  connection  with  partnerships  that  the  existence  of 
such  organizations  could  be  traced  to  an  economic  basis.  It  is  equally 
true  that  economic  forces  brought  corporations  into  existence,  and  that 
economic  motives  account  for  their  continuance.  The  advantages,  as 
well  as  disadvantages,  of  corporate  forms  of  organizations  should  be 
learned  by  students  of  bookkeeping  from  a  course  in  Commercial  Law. 
Here,  it  will  be  sufficient  to  re(  ipitulate  the  more  important  points 
usually  discussed  when  treating  of  corporation  law. 

The  principal  advantages  associated  with  the  existence  of  cor- 
porations are  usually  grouped  under  three  headings,  namely: 

1.  Limitation  of  Liability. — By  this  is  meant  that  a  person  who 
is  a  shareholder  or  a  stockholder  in  a  corporation  (the  term  apphes 
to  the  part  owner  of  such  an  organization)  is  not  liable  for  the  debts  of 
the  corporation.  In  general,  an  investor's  loss  is  Umited  to  the  amount 
which  he  has  contributed  to  the  corporation.  This  is  not  universally 
true,  but  the  exceptions  will  not  be  treated  of  in  this  book. 

2.  Transferability. — If  a  member  of  a  partnership  wishes  to  retire, 
his  action  causes  dissolution  of  the  firm.  In  a  corporation,  on  the  other 
hand,  the  transfer  of  a  stockholder's  interest  does  not  affect  the  organ- 
ization as  such.  This  statement,  too,  has  its  limitations,  but  they  will 
not  be  gone  into  now. 

3.  Duration. — The  Ufe  of  a  partnership  depends,  in  the  absence  of 
a  specific  agreement,  upon  the  life  of  the  individual  members  thereof. 
In  general,  however,  the  Hfe  of  a  corporation  is  independent  of  the  life 
of  the  individual  stockholders,  for  it  goes  on  regardless  of  the  death  of 
an  individual  member  of  the  organization. 

The  disadvantages  are  not  as  easily  stated  in  such  summary  form 
as  are  the  advantages  of  corporations.  For  our  purposes,  however, 
we  may  group  them  under  the  following  sections: 

1.  Reports. — It  is  generally  true  that  partnerships  and  sole  proprietor- 
ships are  not  required  to  furnish  reports  to  pubUc  bodies.  Corporations, 
however,  are  required  to  submit  statements  from  time  to  time,  which 
enable  government  officials  to  ascertain  some  of  the  inner  workings  of 
the  organization.    There  are  those  among  corporation  officials  who 

279 


280  BOOKKEEPING  AND  ACCOUNTING 

regard  such  publicity  as  undesirable  interference,  but  there  are  two  sides 
to  this  question,  and  the  student  is  referred  to  texts  on  economics  for 
a  fuller  discussion. 

2.  Taxation. — Corporations  are,  in  general,  subject  to  severer 
taxation  than  other  organizations.  This  statement  is  somewhat  sweep- 
ing and  will  be  modified  by  more  advanced  study. 

3.  Capitalization. — Capital  changes,  which  are  entirely  within  the 
jurisdiction  of  the  members  of  the  firm,  are  subject  to  some  govern- 
mental interference  in  the  case  of  corporations. 

The  advantages  and  disadvantages  which  have  been  briefly  outUned 
in  the  preceding  paragraphs  have  simply  tended  to  scratch  the  sm-face 
of  a  very  broad  and  interesting  subject.  The  student  is  advised,  at 
his  earliest  opportunity,  to  famiHarize  himself  with  the  broader  aspect 
of  the  subject  involved. 

We  are  now  ready  to  proceed  to  the  bookkeeping  for  corporations 
and  to  other  important  matters  connected  therewith.  The  discussion 
will  be  treated  of  under  the  following  headings: 

Organization  of  a  Corporation. 
Opening  Entries  for  Corporations. 
Miscellaneous  Corporation  Topics. 
Dissolution  of  Corporations. 

50.  Organization  of  a  Corporation 

A  partnership,  as  the  student  knows,  is  ordinarily  created  by  two  or 
more  people  who  enter  into  an  agreement  usually  crystalHzed  into  what 
is  known  as  Articles  of  Copartnership.  Ordinarily,  no  permission  to 
organize  a  partnership  is  required,  but  in  the  case  of  a  corporation, 
various  legal  steps  have  to  be  compUed  with  prior  to  securing  legal 
authority  to  begin  operations  as  a  corporation. 

The  steps,  in  so  far  as  they  apply  to  New  York  State,  are  briefly 
these: 

1.  Preparation  of  three  copies  of  a  certificate  of  incorporation,  each 
of  which  should  be  signed  and  acknowledged  by  the  incorporators. 

2.  IVo  of  these  copies  must  be  sent  to  the  Secretary  of  State  with 
the  request  that  one  of  them  be  filed  and  that  the  other  be  verified  and 
returned  to  the  incorporators. 

3.  Simultaneously  with  the  sending  of  the  certificates  to  the  Secre- 
tary of  State,  the  organization  tax  should  be  sent  to  the  State  Treasurer. 
This  tax  is  ^  of  1%  of  the  amount  of  authorized  capitahzation,  i.e., 
50c.  per  thousand  dollars,  with  a  minimum  tax  of  $5.00.    The  State 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    281 

Treasurer  issues  two  receipts  for  the  organization  tax,  one  of  which  ' 

he  sends  to  the  Secretary  of  State,  and  the  other  to  the  incorporators. 

4.  When  the  certified  copy  of  the  certificate  of  incorporation  is 
returned  to  the  incorporators  by  the  Secretary  of  State,  it,  together 
with  the  dupUcate  receipt  from  the  State  Treasurer,  should  be  filed 
with  the  County  Clerk  of  the  County  in  which  the  office  of  the  cor- 
poration is  located.  The  County  Clerk's  fee  for  fifing  the  certificate 
is  six  cents  per  folio,  and  in  addition  thereto  he  charges  a  recording 
fee  of  ten  cents  per  foUo. 

Though  it  is  not  desired  to  enable  the  student  to  incorporate  a 
company,  nevertheless  it  is  both  interesting  and  profitable  to  famifiarize 
oneself  with  the  detailed  procedure  involved  in  the  organization  of  a 
corporation.  Accordingly  we  shall  present  in  a  very  simple  form  the 
details  involved. 

First  of  all  let  it  be  assumed  that  a  number  of  men  decide  to  organize 
a  trading  company.  Consultation  with  their  lawyer  will  develop  the 
nature  of  the  work  which  it  is  planned  to  perform  and  the  amount 
which  is  to  be  invested,  together  with  the  other  necessary  matters. 

The  Certificate  of  Incorporation  is  thereupon  drawn  up  in  triphcate, 
and  disposed  of  as  outlined  above.  A  copy  of  the  Certificate  of  Incor- 
poration follows:  { 

CERTIFICATE    OF    INCORPORATION    OF   THE 
L.  L.  GLENN    COMPANY,  INC. 

We,  the  undersigned,  all  being  persons  of  full  age  and  at  least  two-thirds 
being  citizens  of  the  United  States  and  at  least  one  of  us  a  resident  of  the  State 
of  New  York,  desiring  to  form  a  stock  corporation  pursuant  to  the  provisions 
of  the  Business  Corporation  Law  of  the  State  of  New  York,  do  hereby  make, 
sign,  acknowledge  and  file  this  Certificate  for  that  purpose,  as  follows: 

FIRST:  The  name  of  the  proposed  Corporation  is  The  L.  L.  Glenn 
Company,  Inc. 

SECOND:  The  purposes  for  which  said  corporation  is  to  be  formed,  are  as 
follows: 

1.  To  engage  in  the  general  business  of  buying  and  selling  dry  goods,  grain, 
feed  and  other  merchandise  and  wares  in  general. 

2.  To  buy,  hold,  own,  manufacture,  produce,  sell  and  otherwise  dispose 
of,  either  as  principal  or  agent,  all  kinds  of  personal  property  connected  with 
various  kinds  of  merchandising  and  trading. 

3.  To  purchase  or  otherwise  acquire,  sell,  exchange,  own,  hold,  utilize, 
deal  in  and  deal  with,  all  processes,  materials,  articles,  products  or  other  per- 
sonal property  of  every  kind  or  description,  used  or  useful  in  connection  with 
any  or  all  of  the  purposes  and  objects  hereinbefore  expressed. 


282  BOOKKEEPING  AND  ACCOUNTING 

4.  To  purchase  or  otherwise  acquire  all  or  any  part  of  the  business,  name, 
good  will,  rights,  assets  and  property  of  all  kinds  and  assume  all  or  any  part  of 
the  liabilities  of  any  corporation,  association,  partnership  or  individual  engaged 
in  any  business  included  in  the  foregoing  purposes  and  objects. 

5.  To  apply  for,  purchase  or  otherwise  acquire,  and  to  hold,  own,  use,  operate, 
and  to  sell,  assign  or  otherwise  dispose  of,  or  grant  licenses  in  respect  to, 
or  otherwise  turn  to  account,  trade-marks,  trade  names,  letters  patent,  patent 
rights,  copyrights,  brands,  labels,  inventions,  improvements  and  all  other  similar 
rights  under  the  laws  of  the  United  States  or  other  countries,  covering,  connected 
with  or  relating  to  any  or  all  of  the  articles,  products  or  things  that  may  at  any 
time  be  dealt  in  by  this  Corporation. 

6.  To  purchase,  lease  or  otherwise  acquire,  hold,  use,  sell,  exchange,  convey 
or  mortgage  such  real  estate  or  personal  property  in  the  United  States  or  else- 
where as  may  be  necessary,  proper  or  desirable  for  the  safe,  convenient,  success- 
ful and  profitable  conduct  of  the  corporate  business. 

7.  Subject  to  the  restrictions  or  limitations  imposed  by  law,  to  purchase 
or  otherwise  acquire,  hold,  own,  sell,  assign,  transfer,  mortgage,  pledge,  exchange 
or  otherwise  dispose  of  the  shares  of  the  capital  stock,  bonds,  obligations  or 
other  securities  or  evidences  of  indebtedness  of  other  corporations,  domestic 
or  foreign,  and  the  good  will,  name,  rights,  assets  and  property  of  any  and  every 
kind,  or  any  part  thereof,  of  any  individuals,  firms  or  corporations,  domestic 
or  foreign,  and  if  desirable,  to  issue  in  exchange  therefor,  the  stock,  bonds  or 
other  obligations  of  this  Corporation,  and,  while  the  owner  of  such  shares  of  the 
capital  stock,  to  exercise  all  rights,  powers  and  privileges  of  ownership,  includ- 
ing the  power  to  vote  thereon. 

8.  Generally  to  do  all  and  everything  necessary,  suitable,  proper,  desirable 
or  advantageous  for  the  furtherance  of  the  corporate  business  or  the  accomplish- 
ment or  attainment  of  any  or  all  of  the  objects,  purposes  and  powers  of  this 
Corporation,  as  hereinbefore  set  forth,  either  alone  or  in  conjunction  with  other 
corporations,  associations,  firms  or  individuals,  and  to  do  any  other  act  or  acts, 
thing  or  things  incidental  or  appurtenant  to  or  growing  out  of  or  connected 
with  the  corporate  business  or  with  any  or  all  of  the  purposes,  objects  or  powers 
hereinbefore  expressed,  to  the  same  extent  and  as  fully  as  natural-born  persons 
might  or  could  do,  provided  always  that  the  same  be  not  inconsistent  with 
or  prohibited  by  the  laws  under  which  this  Corporation  is  organized. 

9.  The  business  or  purpose  of  this  Corporation  is  from  time  to  time  to  do 
any  one  or  more  of  the  acts  or  things  hereinbefore  set  forth,  and  it  may  conduct 
such  business  in  all  of  its  branches,  or  any  part  thereof,  within  or  outside  of 
the  State  of  New  York  and  in  other  states,  territories,  colonies  and  dependencies 
of  the  United  States,  and  in  foreign  countries. 

THIRD:  The  amount  of  the  Capital  Stock  is  five  thousand  dollars 
($5,000.00). 

FOURTH:  The  number  of  shares  of  which  the  Capital  Stock  of  this  Cor- 
poration shall  consist  is  fifty  (50)  shares,  of  the  par  value  of  one  hundred  dollars 
($100.00)  each. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    283 

The  amount  of  capital  with  which  this  Corporation  will  begin  business  is 
five  thousand  dollars  ($5,000.00). 

FIFTH:  At  all  elections  of  Directors  of  the  Corporation,  each  stock- 
holder shall  be  entitled  to  as  many  votes  as  shall  equal  the  number  of  his  shares 
of  stock  multiplied  by  the  number  of  Directors  to  be  elected,  and  he  may  cast 
all  of  such  votes  for  a  single  director  or  may  distribute  them  among  the  number 
to  be  voted  for  or  any  two  or  more  of  them,  as  he  may  see  fit.  Unless  other- 
wise expressly  regulated  by  statute,  this  right  of  cumulative  voting  shall  not  be 
repealed  or  in  any  other  wise  impaired  without  the  affirmative  vote  of  at  least 
eighty  per  cent  (80%)  in  interest  of  the  outstanding  Capital  Stock  of  the  Cor- 
poration, at  a  meeting  duly  called  for  such  purposes. 

SIXTH:  The  principal  business  office  of  the  Corporation  is  to  be  located 
in  the  Borough  of  Manhattan,  City,  County  and  State  of  New  York. 

SEVENTH:    The  duration  of  the  Corporation  is  to  be  perpetual. 

EIGHTH:  The  number  of  its  Directors  is  to  be  five  (5),  three  of  whom 
must  be  stockholders  of  this  Corporation. 

NINTH:  The  names  and  post-office  addresses  of  the  Directors  for  the  first 
year  are  as  follows: 

Names  Post-Office  Addresses 

L.  L.  Glenn  205  Fifth  Ave.,  New  York  City. 

John  Doe  200  Broadway,  New  York  City 

Richard  Roe  155  Sixth  Ave.,  New  York  City. 

John  Smith  66  W.  35th  St.,  New  York  City. 

Arthur  Jones  100  Madison  Ave.,  New  York  City. 

TENTH:  The  names  and  post-office  addresses  of  the  Subscribers  to  this 
Certificate  and  a  statement  of  the  number  of  shares  of  stock  which  each  agrees 
to  take  in  the  Corporation  are  as  follows: 

Names  Post-Office  Addresses  No.  of  Shares 

L.  L.  Glenn  205  Fifth  Ave.,  N.  Y.  City.  20 

John  Doe  200  Broadway,  N.  Y.  City.  15 

Richard  Roe  155  Sixth  Ave.,  N.  Y.  City  15 

ELEVENTH:  The  power  to  make,  adopt,  repeal  or  amend  the  by-laws 
of  the  Corporation  shall  be  vested  in  the  stockholders,  and  except  as  otherwise 
expressly  provided  by  statute  or  in  said  by-laws,  no  by-law  shall  be  adopted, 
repealed,  amended  or  otherwise  altered  without  the  aflSrmative  vote  of  at  least 
a  majority  in  interest  of  the  outstanding  Capital  Stock  of  the  Corporation  at  a 
meeting  duly  called  for  that  purpose.  The  by-laws  may  authorize  the  Board 
of  Directors  to  make  contracts  with  the  executive  officers  and  other  persons  for 
the  performance  of  services  at  an  agreed  upon  reasonable  compensation.  But 
no  salaries  shall  be  voted  by  the  Board  of  Directors  themselves  merely  for  acting 
as  such  directors,  without  the  ratification  by  eighty  per  cent  (80%)  in  interest 
of  the  outstanding  Capital  Stock. 


284  BOOKKEEPING  AND  ACCOUNTING 

TWELFTH:  The  Corporation  shall  have  the  power,  by  vote  of  the  majority 
in  interest  of  the  outstanding  Capital  Stock  and  subject  to  the  regulations  and 
restrictions  imposed  by  law,  to  add  to  its  capital  stock,  to  borrow  money  on 
the  security  of  its  property  and  on  unsecured  promissory  notes.  But  such  action, 
to  be  valid,  must  be  ratified  by  a  two-thirds  vote  of  the  outstanding  Capital 
Stock. 

In  WITNESS  WHEREOF,  we  have  made,  signed,  acknowledged,  and  filed 
this  certificate  in  duplicate  on  the  30th  day  of  September,  19 — . 

L.  L.  GLENN. 
JOHN  DOE. 
RICHARD  ROE. 

On  the  1st  day  of  October,  19 — ,  there  appeared  before  me  L.  L.  Glenn, 
John  Doe  and  Richard  Roe  to  me  personally  known  and  known  to  me  to  be  the 
persons  described  in  and  who  executed  the  foregoing  instrument  and  they  duly 
and  severally  acknowledged  that  they  executed  the  same. 

FRANK  A.  JONES, 
Notary  Public  No.  37,000,  N.  Y.  County. 
N.  Y.  Register  No.  45,000. 
[Seal] 

When  the  duplicate  certificate  has  been  returned  by  the  Secretary 
of  State,  a  meeting  of  the  stockholders  is  called  for  the  purpose  of 
adopting  by-laws  which  are  to  govern  the  officers  and  directors  of  the 
corporation,  about  to  be  elected.  Thereupon,  oflicers  and  directors  are 
elected.  It  is  usual  to  place  a  copy  of  the  Certificate  of  Incorporation, 
sometimes  called  the  charter  of  the  company,  in  the  Minute  Book  of  the 
corporation.  This  Minute  Book  is  similar  to  the  Minute  Book  of  any 
society  and  in  it  are  recorded  all  the  doings  and  transactions  of  the  organ- 
ization which  take  place  at  meetings  of  the  stockholders  and  directors. 
After  the  stockholders  have  paid  their  subscriptions  and  appropriate 
books  are  opened,  the  routine  entries  of  a  corporation  do  not  differ 
essentially  from  the  routine  entries  of  any  other  organization. 

The  Books  of  a  Corporation 

We  have  already  shown  a  copy  of  the  Certificate  of  Incorporation 
and  have  indicated  that  a  Minute  Book  is  kept.  The  minutes  are 
usually  recorded  by  a  lawyer,  but  the  books  themselves  should  be 
opened  by  an  accountant.  It  is  therefore  important  that  the  student 
acquire  positive  knowledge  as  to  the  procedure  in  connection  with  the 
opening  entries. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    285 

The  third  and  fourth  clauses  in  the  Certificate  of  Incorporation 
show  that  the  authorized  capital  is  $5,000.00.  By  authorized  capital 
is  meant  the  amount  stated  in  the  Certificate  and  it  represents  the 
maximum  par  or  face  value  for  which  shares  may  be  issued.  By  shares 
are  meant  fractional  parts  of  the  capital.  In  this  case,  the  authorized 
capital  of  $5,000.00  was  divided  into  shares  or  parts  of  $100.00  each, 
and  therefore  into  fifty  parts.  A  "share  "  or  a  "  share  of  stock  "  is 
one  of  these  parts.     The  following  is  an  illustration  of  such  stock. 


Incorporated  Under  the  Laws  of 

New  York 

No.  1  Shares  15 

THE  L.  L.  GLENN  COMPANY,  INC. 

AUTHORIZED  CAPITAL  STOCK  $5,000.00 

THIS  CERTIFIES  THAT -iMN...pOE- is  the  owner  of 

IIFTEEN Shares  of  the  Capital  Stock  of 

THE  L.  L.  GLENN  COMPANY  (INC.) 

fully  paid  and  nonassessable 

transferable  only  on  the  books  of  the  Corporation  by  the  holder 
hereof  in  person  or  by  Attorney  upon  surrender  of  this  Certificate 
properly  indorsed. 

IN  WITNESS  WHEREOF,  the  said  Corporation  has  caused 
this  Certificate  to  be  signed  by  its  duly  authorized  officers  and  to  be 
sealed  with  the  Seal  of  the  Corporation,  this ^isth day  of 

October a.D.,  19 — . 

John  Doe  Richard  Roe 

Secretary.  President. 

SHARES  $100  EACH 


The  above  form  is  also  referred  to  as  a  certificate  of  stock  or  as  a 
stock  certificate.  One  such  certificate  is  usually  issued  to  each  share- 
holder or  stockholder  and  shows  the  number  of  shares  which  he  owns. 
This  ownership  is  indicated  by  filling  in  the  blank  space 

" Shares  of  the  Capital  Stock  of  " 


286 


BOOKKEEPING  AND  ACCOUNTING 


Questions 

1.  Distinguish  between  a  corporation,  partnership  and  sole  proprietorship. 

2.  What  is  meant  by  the  capitalization  of  a  corporation? 

3.  How  does  the  capital  stock  of  a  corporation  differ  from  its  net  capital  or 
net  worth? 

4.  Summarize  the  steps  which  are  necessary  to  incorporate  a  manufacturing 
company  in  your  state. 

5.  What  is  meant  by  the  Certificate  of  Incorporation? 

6.  What  is  a  stock  certificate? 

No  exercises  are  suggested  for  this  section. 

51.  Opening  Entries  for  Corporations 

Case  I. — We  are  now  about  to  show  the  opening  Journal  entry  to 
record  the  fact  that  The  L.  L.  Glenn  Company  was  organized  with  an 
authorized  capital  of  $5,000.00  and  that  all  of  the  shares  were  subscribed 
for  as  shown  in  the  10th  clause  of  the  Certificate. 


C;^^-^^**-*^^^^!^ 


/^/f- 


/(PC.  0<!> 


C771, 


Kf<?£^C 


K^/PCC 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    287 

Subscribers  are  persons  who  have  agreed  to  buy  shares  of  stock. 
The  purpose  of  the  opening  entry  is  to  record  the  fact  that  various  people 
have  agreed  to  take  the  $5,000.00  worth  of  stock.  Unlike  a  similar 
situation  in  a  partnership,  an  entry  must  be  made  for  their  willingness 
to  take  this  stock,  even  though  they  have  not  yet  paid  for  it.  Accord- 
ingly, some  account  must  be  opened  to  show  that  various  subscribers 
have  become  liable  to  the  L.  L.  Glenn  Company,  for  the  purchase  of 
the  fifty  (50)  shares  of  stock  to  be  subsequently  issued. 

A  popular  entry  is  shown  on  the  preceding  page. 

The  student  should  note  that  the  entry  consists  of  two  parts.  The 
introduction,  corresponding  to  the  introduction  in  an  ordinary  organi- 
zation, is  sometimes  referred  to  as  the  preamble.  The  second  part  is 
the  technical  entry,  resulting  in  debits  and  credits  of  equal  amount. 
The  Subscriptions  ^  account  is  a  summary  of  all  the  claims  of  the  cor- 
poration against  the  individual  subscribers.  It  represents,  in  a  sense, 
what  individual  subscribers,  later  to  become  stockholders  or  shareholders, 
as  stock  is  actually  issued  to  them,  owe  to  the  corporation.  From  this 
point  of  view,  it  is  somewhat  analogous  to  Accounts  Receivable,  the 
sunomary  or  controlling  account  of  all  the  trade  debtors  of  an  organiza- 
tion. This  Subscriptions  account,  which  is  opened  in  the  General 
Ledger,  though  it  gives  information  as  to  the  total  indebtedness  of  sub- 
scribers to  the  corporation,  still  fails  to  show  how  much  individual  sub- 
scribers owe.  It  is  therefore  necessary  to  keep  a  record  with  these 
individual  subscribers.  In  smaU  organizations,  this  is  frequently  kept 
in  the  Minute  Book,  and  for  our  pin-poses  the  form  employed  in  such 
Minute  Book  is  sufficient.     It  is  as  follows: 


DATE 

NAMEOFSUBSC»aBER 

ADDRESS 

Na  OF  SHARES 
SUBSCRIBED  FOR 

PRICE  PER 
SHARE 

HOW    PAID                                   1 

DATE 

AMOUNT 

DATE 

AMOUNT 

DATE 

AMOUNT 

■ 

The  foregoing  form  is  undoubtedly  self-explanatory.  Just  a  word, 
however,  regarding  the  rulings  to  the  right  of  the  Amount  column. 
Inasmuch  as  subscribers  sometimes  cancel  their  subscriptions  by  partial 


^  Other  forms  of  opening  entries  are  also  employed, 
probably  as  simple  as  any. 


The  one  here  shown  .».« 


288 


BOOKKEEPING  AND  ACCOUNTING 


payments,  called  installments,  some  provisions  must  be  made  to  record 
such  payments  on  account.  In  large  corporations,  forms  for  such 
installment  payments  are  necessarily  more  elaborate.  When  a  stock- 
holder pays  for  his  subscription,  an  entry  must  be  made  cancehng 
his  indebtedness  to  the  corporation,  as  shown  by  the  Subscriptions 
account.  Thus,  on  the  assumption  that  Messrs.  Glenn  and  Doe  have 
paid  for  their  subscriptions  in  full,  the  following  is  the  entry: 

Cash  $3,500.00 

Subscriptions  $3,500.00 

Cancellation  of  subscriptions  as  follows: 

L.  L.  Glenn  20  shares 

John  Doe  15  shares 

The  credit  of  $3,500.00  to  Subscriptions  accoimt  reduces  the  amount 
still  collectible  to  $1,500.00,  which  fact  is  shown  by  the  Subscriptions 
account  in  the  General  Ledger. 

Instead  of  issuing  receipts  to  Messrs.  Glenn  and  Doe,  in  acknowledg- 
ment of  their  payments,  certificates  of  stock  are  given.  These  certificates 
are  taken  from  what  is  known  as  a  Stock  Certificate  Book,  consisting  of 
stubs  with  detachable  certificates.  The  certificate  issued  to  Mr.  Glenn, 
together  with  the  stub  to  which  it  is  attached,  is  shown  on  page  289. 

After  all  the  subscriptions  have  been  paid,  the  Subscriptions  account 
will  be  closed.  The  Capital  Stock  account,  credited  for  $5,000.00, 
represents  now  not  only  the  amount  of  the  authorized  capital  but  the 
actual  amount  of  capital  invested.  Corresponding  to  this  Capital 
Stock  account,  there  should  be  accounts  with  individual  stockholders, 
so  as  to  disclose  who  the  owners  of  the  organization  really  are.  Such 
individual  accounts  with  stockholders  are  kept  in  what  is  known  as 
the  Stockholder's  Ledger  or  Stock  Ledger.  Very  frequently  the  Stock 
Ledger  is  a  card  ledger  device,  but  in  small  organizations  the  Stock 
Ledger  may  be  incorporated  in  the  Minute  Book.  The  debit  side  of  such 
a  Ledger  is  shown  below,  while  the  credit  side  appears  on  page  290. 

Stock  Ledger 

(Debit  Side) 


Date. 


Certificate  Nos.      No.  of  Shares, 


How  Canceled. 


Par  Value. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    289 

t— — — — ______ _ 


.u 


p 


iii 


290 


BOOKKEEPING  AND  ACCOUNTING 
(Credit  Side) 


Date. 


Certificate  Nos. 


No.  of  Shares. 


How  Acquired. 


Par  Value. 


The  student  should  note  that  the  Capital  Stock  account  controls 
the  individual  accounts  in  the  Stock  Ledger.  In  this  sense  the  Capital 
Stock  account  is  truly  a  controlling  account.  Until  such  time  as  all 
subscriptions  have  been  paid,  the  Capital  Stock  account,  minus  the 
debit  balance  of  the  Subscriptions  account,  controls  the  Stock  Ledger. 

Case  II. — In  Case  I  we  considered  the  entry  resulting  from  the  sim- 
plest form  of  corporate  organization.  But  it  is  not  true  that  all  cor- 
porations secure  immediate  subscriptions  to  all  of  the  authorized  capi- 
tahzation  and  that  these  subscriptions  are  at  once  paid  in  cash.  As  a 
second  situation,  we  will  assume  that  the  Glenn  company,  though 
organized  \^rith  an  authorized  capital  of  $5,000.00,  secured  subscriptions 
for  only  $3,000.00.  The  question  before  113  now  is  what  opening  entry 
is  necessary? 

If  four  men  decided  to  form  a  partnership,  each  man  to  invest 
$1,250.00,  but  if  each  man  invested  only  $750.00,  the  opening  entry 
of  the  partnership  would  record  the  fact  that  the  total  investment  was 
$3,000.00  and  would  entirely  ignore  the  intentions  of  the  partners  to 
invest  $5,000.00.  But  in  a  corporation,  it  is  usual  to  record  the  full 
amount  of  the  authorized  capital,  despite  the  fact  that  all  of  it  was  not 
subscribed  for.     The  entry  is  essentially  as  follows: 


Subscriptions 
? 


$3,000.00 
2,000.00 


Capital  Stock 


$5,000.00 


What  is  the  name  of  the  account  to  be  debited  for  $2,000.00?  The 
simplest  solution  is  to  record  the  fact  that,  though  $5,000.00  was  author- 
ized, $2,000.00  was  unsubscribed  for.  Accordingly  Unsubscribed  Stock 
account  is  frequently  employed.  The  formal  entry  then  is  as  shown 
on  page  291. 

As  each  subscriber  cancels  his  indebtedness  to  the  Company,  an 
entry  is  made,  as  the  student  has  already  learned,  charging  Cash  and 
crediting  Subscriptions.  But  as  it  is  quite  hkely  that  the  corporation 
may  secure  additional  subscriptions,  it  is  well  for  us  to  learn  what  entry 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    291 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC. 

Incorporated  under  the  laws  of  the 

State  of  New  York 

with  an 

AUTHORIZED  CAPITAL 

of 

$5,000.00 

divided  into  50  shares,  each  of  a 

par  value  of  $100.00. 

Subscriptions 
Unsubscribed  Stock 
Capital  Stock 


L.  L.  Glenn 
John  Doe 
Richard  Roe 


10  shares 
10  shares 
10  shares 


3,000 
2,000 


00 
00 


5,000 


00 


is  necessitated  by  such  additional  subscriptions.  Thus,  let  us  assume 
that  Richard  Roe  has  subscribed  for  three  additional  shares.  What  is 
the  entry?    Does  the  following  appeal  to  you? 


Subscriptions 

Capital  Stock 


$300.00 


$300.00 


Is  it  a  fact  that  subscriptions  have  been  increased?  Then  the  debit 
entry  is  correct.  Is  it  a  fact  that  Capital  Stock  has  been  increased? 
This  cannot  be  so,  because  the  original  entry  credited  the  Capital 
Stock  account  for  the  full  amount  authorized  and  there  has  been,  of 
course,  no  increase  of  the  amount  authorized  by  law.  The  credit  entry 
is  therefore  incorrect.  Now  what  is  it  that  Mr.  Roe  has  really  sub- 
scribed to?  Is  it  not  to  the  stock  previously  unsubscribed,  i.e.,  to 
Unsubscribed  Stock?    The  entry  is  accordingly: 

Subscriptions  $300.00 

Unsubscribed  Stock  $300 .  00 

To  record  subscriptions  of 
Richard  Roe  for  three  shares  at 
par. 

When  all  of  the  unsubscribed  stock  has  been  subscribed  for  and 
all  of  the  subscriptions  have  been  paid,  then  both  the  Subscriptions 
account  and  the  Unsubscribed  Stock  account  will  be  closed  and  the 


292 


BOOKKEEPING  AND  ACCOUNTING 


open  accounts  will  be  exactly  the  same  as  those  which  were  found  to 
exist  in  Case  I,  above.  The  Balance  Sheet  shown  on  page  308,  follow- 
ing, illustrates  how  the  unsubscribed  stock  is  sometimes  shown  on 
financial  statements. 

Case  III. — In  Cases  I  and  II,  above,  we  considered  the  opening 
entries  resulting  from  the  organization  of  a  new  corporation.  But 
occasion  also  arises  for  opening  the  books  of  a  sole  proprietorship 
which  after  existing  as  such  for  some  time,  decides  to  incorporate. 
It  will  be  necessary,  therefore,  to  learn  what  entries  are  necessitated  by 
incorporating  such  an  organization.  For  purposes  of  illustration, 
let  us  consider  the  situation  created  when  Mr.  L.  L.  Glenn,  who  is  in 
business  for  himself,  decides  to  incorporate  under  the  laws  of  New  York 
State,  with  an  authorized  capital  of  $10,000.00,  and  whose  financial 
condition  at  that  time,  is  reflected  by  the  following  Balance  Sheet: 

Balance  Sheet  of  L.  L.  Glenn  as  of  October  1,  19 — 


Assets: 
Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 


$1,500.00 

3,200.00 

9,000.00 

800.00 


$14,500.00 


Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  LiabiUties 

Capital: 
L.  L.  Glenn 


$2,500.00 
2,000.00 

4,500.00 

10,000.00 
$14,500.00 


It  may  be  taken  for  granted  that  all  of  the  necessary  legal  require- 
ments have  been  comphed  with.  A  single  question  remains  before 
proceeding  to  the  formal  entry.  It  is  whether  Mr.  Glenn  wishes  the 
old  books  to  be  continued  or  whether  he  prefers  to  open  an  entirely 
new  set  of  books.     We  shall  present  both  solutions. 

Solution  A. — The  old  books  to  be  continued: 

The  student  already  knows  that  under  the  laws  of  New  York  State 
a  corporation  cannot  be  organized  with  less  than  three  subscribers. 
Accordingly,  if  Mr.  Glenn  wishes  to  incorporate  his  business,  he  must 
provide  two  additional  subscribers.  Immediately  after  the  business 
has  been  organized,  however,  if  he  so  chooses,  he  may  arrange  to  have 
the  other  two  stockholders  transfer  or  sell  their  stock  to  him.  Aside 
from  the  point  raised,  it  is  necessary  for  us  to  realize  that,  if  Mr.  Glenn 
incorporates  his  business,  his  action  is  equivalent  to  a  sale  made  by 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    293 


Mr.  Glenn,  personally,  to  the  new  corporation.  Various  entries  are 
employed,  but  we  shall  present  one  of  the  simplest  methods  whereby 
corporation  books  will  be  substituted  for  the  individual  books  of  Mr. 
Glenn.  First  of  all,  it  is  assumed  that  the  routine  entries  in  the  Minute 
Book,  Subscription  Book,  Certificate  Book  and  Stock  Ledger  have 
been  made.  The  following  Journal  entry  will  record  the  creation  of 
the  corporation  and  will  effect  the  necessary  change  in  the  accoimts. 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the 

laws  of  the  State  of  New  York 

with  an 

AUTHORIZED  CAPITAL 

of 

$10,000.00 

divided  into  100  shares,  each  of  a 

par  value  of  $100.00 


Subscriptions 

Capital  Stock 

The  following  are  the  subscribers 
to  all  of  the  Capital  Stock  of  this 
Company: 


L.  L.  Glenn 
John  Doe 
Richard  Roe 


1  share 
1  share 


L.  L.  Glenn,  Capital 
Subscriptions 

L.  L.  Glenn  has  this  day  transferred 
his  rights  and  interests  in  his  business 
to  the  L.  L.  Glenn  Company,  Inc.,  as 
per  agreement  recorded  in  the  Minute 
Book,  page  34,  in  full  cancellation  of  his 
subscription  to  98  shares  of  capital 
stock  and  of  John  Doe's  one  share  and 
Richard  Roe's  one  share. 


10,000 


10,000 


00 


00 


10,000 


10,000 


00 


00 


204 


BOOKKEEPING  AND  ACCOUNTING 


The  student  should  make  it  a  point  thoroughly  to  master  the  fore- 
going entries.  He  should  note  that  the  account  of  Mr.  Glenn  has  dis- 
appeared from  the  books  as  it  should,  and  that  its  place  has  been  taken 
by  the  Capital  Stock  account.  Subscriptions  account,  which  was  tem- 
porarily opened,  was  inmiediately  closed.  The  old  asset  accounts, 
which  were  transferred  to  the  corporation  and  the  corresponding 
liability  accounts,  which  were  assumed  by  the  corporation,  remain 
untouched  as  the  books  are  to  be  continued  and  no  changes  take  place 
in  these  asset  and  liabiUty  accounts. 

The  Balance  Sheet  of  the  Corporation  is  now  as  follows: 


Balance  Sheet  of  The  L.  L.  Glenn  Company,  Inc.,  October  1,  19 — 


Assets: 
Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 


$1,500.00 
3,200.00 
9,000.00 
800.00 f 


$14,500.00 


Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
Capital  Stock 


$2,500.00 
2,000.00 

4,500.00 

$10,000.00 
$14,500.00 


A  comparison  between  the  above  Balance  Sheet  and  that  of  L.  L. 
Glenn  (page  292)  will  disclose  the  fact  that  just  a  single  difference  exists, 
namely,  "  Capital  Stock  $10,000.00,''  has  taken  the  place  of  "  L.  L. 
Glenn,  Capital  $10,000.00." 

Solution  B. — ^A  new  set  of  books  to  be  employed: 

The  problem  now  is  more  complicated  than  in  Solution  A,  for  it 
involves  the  closing  of  the  old  books  besides  the  opening  of  the  new 
ones.  We  shall  first  close  the  old  books.  Caution:  Consider  the  books 
of  Mr.  Glenn  as  still  open,  and,  of  course,  conducted  as  the  books  of  a 
sole  proprietorship,  not  as  corporation  books. 

(a)  To  close  the  old  books: 

As  Mr.  L.  L.  Glenn  has  sold  his  entire  business  to  the  L.  L.  Glenn 
Company,  Incorporated,  we  must  record  this  transaction  fully.  The 
steps  involved  consist  of  transferring  the  assets  to  the  Company,  the 
assumption  of  the  liabilities  by  the  Company,  and  the  payment  by  the 
Company  for  the  business. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    295 


Oct.  1,  19— 
The  L.  L.  Glenn  Company,  Inc. 
Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 

14,500 

00 

1,500 

3,200 

9,000 

800 

00 
00 
00 
00 

I  have  this  day  transferred  all  my 
assets  to  the  L.  L.  Glenn  Co.,  Inc.,  as 
per  agreement. 

1 
Accounts  Payable 
Notes  Payable 

The  L.  L.  Glenn  Company,  Inc. 

2,500 
2,000 

00 
00 

4,500 

00 

The    L.    L.    Glenn    Co.,    Inc.    has 
assumed  all  my  existing  liabilities,  as 
per  agreement. 

After  posting  the  two  foregoing  entries,  only  two  open  accounts 
will  remain,  and  these  are: 


L.  L.  Glenn,  Capital 


$10,000.00 


The  L.  L.  Glenn  Co.,  Inc. 


19— 

Oct.  1  $14,500.00 


19— 

Oct.  1  $4,500.00 


Mr.  Glenn's  account  shows  his  net  capital.  The  account  with  the 
Company  shows  that  it  has  received  $14,500.00  and  that  it  has  reduced 
its  indebtedness  by  $4,500.00,  so  that  it  still  owes  us  the  balance  of 
$10,000.00.  It  will  pay  this  balance  by  giving  us  $10,000.00  of  its 
stock,  which  will  close  its  account  on  our  books.  As  Mr.  Glenn  will 
take  the  stock  in  full  payment,  his  account  will  be  charged,  closing  it 
also.    Accordingly,  all  the  accounts,  and  hence  the  books,  will  be  closed: 


Oct. 


1,  19— 


L.  L.  Glenn,  Capital  $10,000 .  00 

The  L.  L.  Glenn  Co.,  Inc.  $10,000.00 

Received  100  shares  of  the  L.  L.  Glenn  Co.,  Inc.  stock 
in  full  payment  for  my  business. 


296 


BOOKKEEPING  AND  ACCOUNTING 


Some  accountants  would   make  two  separate  entries  for  the  final 

transactions: 

Oct.  1,  19— 

L.  L.  Glenn  Co.  Stock  $10,000.00 

The  L.  L.  Glenn  Co.  Inc.  $10,000.00 

Received  100  shares  of  the  L.  L.  Glenn  Co. 
stock,  in  full  payment  of  its  account. 

L.  L.  Glenn,  Capital  $10,000 .  00 

The  L.  L.  Glenn  Co.  Stock  $10,000 .  00 

Mr.  Glenn  accepted  The  L.  L.  Glenn  Co. 
stock  in  full  payment  of  his  account. 

Either  the  first  entry,  which  is  the  simpler,  or  the  second,  which  con- 
sists of  two  steps,  is  correct.     The  student  may  select  either  one. 

(b)  Opening  the  new  books: 

After  closing  the  old  books,  it  is  necessary  to  open  a  new  set.  This 
is  a  very  simple  procedure,  and  should  not  prove  difficult,  for  the  entries 
are  similar  to  those  shown  in  Cases  I  and  II,  above.  The  entries  on 
page  297  accompHsh  the  desired  purpose. 

The  student  may  notice  that  the  explanation  appended  to  the  fore- 
going entry  is  not  identical  with  the  one  following  the  similar  entry 
on  page  293.  The  difference  is  purposeful,  as  it  is  intended  to  emphasize 
the  fact  that  remarks  explanatory  of  original  entries  should  be  clear, 
concise  and  complete.  The  phrasing  employed  is  individual;  learn  to 
express  the  idea  in  your  own  words. 

A  Balance  Sheet  of  the  Corporation  would  now  be  prepared.  It 
would  be  exactly  the  same  as  the  one  shown  on  page  294. 

Case  IV. — In  Case  III  we  discussed  the  conversion  of  a  sole  pro- 
prietorship into  a  corporation.     We  shall  now  consider  the  change  from 


L.  L.  Glenn  and  Company  as  of  December  1,  19 — 

Assets: 

Liabilities: 

Cash 

$1,500.00 

Accounts  Payable 

$2,500.00 

Mdse.  Inventory 

3,200.00 

Notes  Payable 

2,000.00 

Accounts  Receivable 
Furniture  and  Fixtures 

9,000.00 
800.00 

Total  Liabilities 

Capital: 

L.  L.  Glenn  $5,000.00 
John  Doe        3,000.00 

4,500.00 

Richard  Roe  2,000.00 

10,000.00 

$14,500.00 

$14,500.00 

CORPORATION  BOOKKEEPING  AND  ACCOUNTING    297 


Oct.  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC. 

has  this  day  incorporated  under  the 

laws  of  the  State  of  New  York 

with  an 

AUTHORIZED  CAPITAL 

of 

$10,000.00 

divided  into  100  shares,  each  of  a  par 

value  of  $100.00 

1 

Subscriptions 
Capital  Stock 
The  following  are  the  subscribers 
to  all  of  the  Capital  Stock  of  this 
Company: 

L.  L.  Glenn  98  shares 

John  Doe  1  share 

Richard  Roe  1  share 

Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 

Accounts  Payable 

Notes  Payable 

Subscriptions 

Accepted  in  full  of  all  subscriptions 
to  the  capital  stock  of  this  Company, 
the  business  of  L.  L.  Glenn,  as  per 
agreement  recorded  in  Minute  Book, 
page  — . 


10,000 


1,500 

3,200 

9,000 

800 


00 


00 
00 
00 
00 


10,000 


2,500 

2,000 

10,000 


00 


00 
00 
00 


a  partnership  to  a  corporation  under  similar  conditions.  In  order  to 
simplify  our  task,  let  us  assume  a  partnership  consisting  of  three  mem- 
bers, whose  business  condition  on  October  1,  19 — ,  is  reflected  in  the 
Balance  Sheet  shown  on  the  preceding  page. 

It  is  desired  to  convert  this  business  into  a  corporation,  The  L.  L. 
Glenn  Company,  Inc.,  with  a  capital  of  $10,000.00,  all  to  be  issued  to 


298 


BOOKKEEPING  AND  ACCOUNTING 


the  members  of  the  firm  of  L.  L.  Glenn  &  Company.  For  this  pur- 
pose Articles  of  Incorporation  are  drawn  up  and  the  necessary  prelimi- 
nary steps  are  taken,  all  as  detailed  on  pages  280-284.  The  essential 
difference  is  that  the  subscribers  in  this  case  are  as  follows: 

L.  L.  Glenn,  50  Shares;  John  Doe,  30  Shares;  Richard  Roe,  20  Shares. 

As  in  the  case  of  the  sole  proprietorship,  we  shall  discuss  two  cases : 
(a)  the  old  books  to  be  continued,  and  (6)  a  new  set  of  books  to  be  em- 
ployed. 

Solution  A. — The  old  books  to  be  continued: 


Oct.  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC. 

has  this  day  incorporated  under  the  laws  of 

the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$10,000.00 

divided  into  100  shares,  each  of  a  par 

value  of  $100.00 

1 
Subscriptions 

Capital  Stock 

The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 

L.  L.  Glenn  50  shares 

John  Doe  30  shares 

Richard  Roe  20  shares 

1 
L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 
Subscriptions 

Messrs.  L.  L.  Glenn,  John  Doe  and  Richard 
Roe  have  this  day  transferred  their  rights  and 
interests  in  their  business  to  the  L.  L.  Glenn 
Company,  Inc.,  as  per  agreement  recorded  in 
the  Minute  Book,  page ,  in  full  cancella- 
tion of  their  subscriptions. 


10,000 


5,000 
3,000 
2,000 


00 


10,000 


10,000 


00 


00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    299 

Just  as  in  the  case  of  a  sole  proprietorship,  the  effect  of  the  final 
entry  is  to  substitute  Capital  Stock  account  ($10,000.00)  for  the  accounts 
of  the  men  who  sold  their  interest  in  the  old  firm  to  the  corporation, 
Mr.  Glenn  ($5,000.00),  Mr.  Doe  ($3,000.00)  and  Mr.  Roe  ($2,000.00). 
It  is  unnecessary  to  show  the  Balance  Sheet  of  the  corporation  at  this 
point,  because  it  is  identical  with  the  one  shown  on  page  294. 

Solution  B. — A  new  set  of  books  to  be  employed: 

We  know  that,  before  we  open  the  new  books,  we  must  close  the  old 
ones.    We  proceed  to  do  so  at  once. 


(a)  To  close  the  old  books: 


October  1,  19— 

The  L.  L.  Glenn  Company,  Inc. 
Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 

We  have  this  day  transferred  all  our  assets 
to  the  L.  L.  Glenn  Co.,  Inc.,  as  per  agreement. 


Accounts  Payable 
Notes  Payable 

The  L.  L.  Glenn  Company,  Inc. 

The  L.  L.  Glenn  Company,  Inc.,  has 
assumed  all  our  existing  liabilities,  as  per 
agreement. 

1 
L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 

The  L.  L.  Glenn  Company,  Inc. 

Received  100  shares  of  the  Capital  Stock  of 
the  L.  L.  Glenn  Company,  Inc.,  in  full  pay- 
ment of  our  business,  distributed  as  follows: 


L.  L.  Glenn 

50  shares 

John  Doe 

30  shares 

Richard  Roe 

20  shares 

14,500 


00 


2,500 
2,000 


5,000 
3,000 
2,000 


1,500 

3,200 

9,000 

800 


00 
00 
00 
00 


4,500 


10.000 


00 


00 


300 


BOOKKEEPING  AND  ACCOUNTING 


The  books  of  the  partnership  are  now  closed  so  that  we  are  ready 
to  open  the  new  books  of  the  corporation. 
(6)  To  open  the  new  books: 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC. 

has  this  day  incorporated  under  the  laws  of 

the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$10,000.00 

divided  into  100  shares,  each  of  a  par 

value  of  $100.00 


Subscriptions 

Capital  Stock 

The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 

L.  L.  Glenn  50  shares 

John  Doe  30  shares 

Richard  Roe  20  shares 

1 

Cash 

Mdse.  Inventory 

Accounts  Receivable 

Furniture  and  Fixtures 
Accounts  Payable 
Notes  Payable 
Subscriptions 

Accepted  in  full  of  all  subscriptions  to  the 
Capital  Stock  of  this  Company,  the  business 
of  L.  L.  Glenn  &  Co.,  as  per  agreement  re- 
corded in  the  Minute  Book,  page  — . 


10,000 


1,500 

3,200 

9,000 

800 


00 


10.000 


2,500 

2,000 

10,000 


OC 


The  explanations  of  the  solution  for  Case  IV  have  purposely  been 
curtailed,  as  it  is  assumed  that  the  student  will  master  Case  III  before 
studying  the  fourth  case.  However,  should  the  foregoing  entries  not 
be  entirely  clear,  re-read  the  earlier  discussion  as  the  same  principles 
are  involved  in  the  later  problems. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    301 


Case  V. — We  are  now  ready  to  introduce  a  more  complicated  situa- 
tion than  any  discussed  in  the  foregoing  cases.    Suppose  that  The 


October  1,  1»— 
GoodWiU 

L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 
To  set  up  good  will  allowed  us  by  the  L.  L. 
Glenn  Co.,  Inc.,  as  per  agreement,  and  to 
distribute  same  among  the  members  of  the 
firm. 

1 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the  laws 

of  the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$15,000.00 

divided  into  100  shares,  each  of  a  par 

value  of  $100.00 

1 

Subscriptions 

Capital  Stock 
The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 
L.  L.  Glenn  75  shares 

John  Doe  45  shares 

Richard  Roe  30  shares 

1 
L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 
Subscriptions 
L.  L.  Glenn  &  Co.,  have  this  day  transferred 
their  rights  and  interests  in  their  business  to 
the  L.  L.  Glenn  Company,  Inc.,  as  per  agree- 
ment recorded  in  the  Minute  Book,  page  — , 
in  full  cancellation  of  the  following  subscrip- 
tions to  the  Capital  Stock  of  the  Company. 
L.  L.  Glenn  75  shares 

John  Doe  45  shares 

Richard  Roe  30  shares 


5,000 


15.000 


7,500 
4,500 
3,000 


00 


00 


2,500 
1,500 
1.000 


15,000 


15,000 


00 


00 


302 


BOOKKEEPING  AND  ACCOUNTING 


L.  L.  Glenn  Company  was  incorporated  with  an  authorized  capital  stock 
of  $15,000.00  all  of  which  was  issued  to  the  firm  of  L.  L.  Glenn  &  Co. 
for  its  business.  Again  we  shall  have  to  consider  the  accounting  pro- 
cedure, both  when  the  old  books  are  to  be  continued  and  when  a  new 
set  is  to  be  used. 

Solution  A. — The  old  books  to  be  continued: 

You  should  carefully  grasp  the  essential  fact  involved  in  this  problem, 
namely,  that  the  corporation  was  to  pay  $15,000.00  to  the  firm  for  the 
latter's  net  capital.  The  principle  involved  may  be  stated  in  book- 
keeping terms,  thus: 

Stock  $15,000.00 

Firm  Capital  $10,000.00 

?  5,000.00 

What  else  did  the  firm  give  besides  its  capital  of  $10,000.00?  Under 
partnerships  we  were  introduced  to  the  meaning  of  "  Good  Will."  (See 
pages  257-258.)  Good  Will  is  exactly  what  the  corporation  bought 
when  it  paid  an  excess  of  $5,000.00  for  the  firm's  capital.  Accordingly, 
it  is  necessary  to  *'  set  up  "  good  will  on  the  books  of  the  firm.  This  is 
accomplished  by  opening  the  new  account  and  crediting  the  members 
of  the  firm  for  their  respective  shares  of  the  profit  earned  by  virtue  of 
the  fact  that  the  corporation  paid  them  more  than  the  replacement  value 
for  their  net  capital. 

Another  question  remains  for  settlement  before  we  are  ready  for  the 
necessary  entry,  namely,  how  much  of  this  $5,000.00  shall  be  credited 
to  Messrs.  Glenn,  Doe  and  Roe,  respectively?  In  the  absence  of  a  speci- 
fic agreement  to  the  contrary,  partners,  as  the  student  knows,  share  in 
profits  and  losses  equally.  In  this  case,  we  shall  assume  that  the 
Articles  of  Copartnership  provide  for  the  division  of  profits  in  proportion 
to  the  partners'  capitals.     The  entry  then  is  shown  as  on  page  301. 

The  books  of  L.  L.  Glenn  &  Co.,  have  now  been  changed  to  the 

Balance  Sheet  of  The  L.  L.  Glenn  Company,  Inc.,  October  1,  19 — 


Assets: 
Cash 

Merchandise  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 
Good  Will 


$1,500.00 

3,200.00 

9,000.00 

800.00 

5,000.00 

$19,500.00 


Liabilities: 

Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
Capital  Stock 


$2,500.00 
2,000.00 

4,500.00 

15,000.00 
$19,500.00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    303 


books  of  The  L.  L.  Glenn  Co.,  Inc.,  a  corporation.  Future  transactions 
will  be  entered  as  hitherto,  because,  as  previously  explained,  sales  and 
purchases  and  all  other  routine  items  are  treated  alike  on  the  books  of 
any  organization  regardless  of  the  form  of  the  proprietorship.  The 
corporate  Balance  Sheet  is  now  as  shown  on  page  302. 
Solution  B. — A  new  set  of  books  to  be  employed: 

(o)  To  close  the  old  partnership  books: 


October  1,  19— 
Good  Will 

L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 

To  set  up  good  will  allowed  us  by  The  L.  L. 
Glenn  Co.,  Inc.,  as  per  agreement,  and  to  dis- 
tribute same  among  the  members  of  the  firm. 


5,000 


00 


2,500 
1,500 
1,000 


00 
00 
00 


This  entry  is  similar  to  the  one  shown  on  page  301.  Note  that 
good  will  has  been  included  to  cancel  this  account  as  well  as  to  trans- 
fer it. 


The  L.  L.  Glenn  Co.,  Inc. 
Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 
Good  Will 

We  have  transferred  all  our  assets,  inclusive 
of  good  will,  to  The  L.  L.  Glenn  Co.,  Inc.,  as 
per  agreement. 

1 
Accounts  Payable 
Notes  Payable 

The  L.  L.  Glenn  Co.,  Inc. 

The  L.  L.  Glenn  Co.,  Inc.  has  assumed  all  our 
existing  liabilities,  as  per  agreement. 


19,500 


00 


2,500 
2,000 


1,500 
3,200 
9,000 
800 
5,000 


4,500 


00 


304 


BOOKKEEPING  AND  ACCOUNTING 


L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 

The  L.  L.  Glenn  Co.,  Inc. 

Received  150  shares  of  The  L.  L.  Glenn  Co., 
Inc.  stock  in  full  payment  of  our  business, 
distributed  as  follows: 


L.L.Glenn 

75  shares 

John  Doe 

45  shares 

Richard  Roe 

30  shares 

7,500 
4,500 
3,000 


15.000 


00 


(6)  To  open  the  books  of  the  corporation : 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the  laws 

of  the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$15,000.00 

divided  into  150  shares,  each  of  a  par 

value  of  $100.00 


Subscriptions 

Capital  Stock 

The  following  are  the  subscribew  to  all  of 
the  Capital  Stock  of  this  Company: 


L.  L.  Glenn 

75  shares 

John  Doe 

45  shares 

Richard  Roe 

30  shares 

15,000 


00 


15,000 


00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    303 


1 

Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 
Good  Will 

Accounts  Payable 

Notes  Payable 

Subscriptions 

Accepted  the  business  of  L.  L.  Glenn  &  Co. 
in  full  cancellation  of  all  subscriptions  to  the 
capital  stock  of  this  Company,  as  follows: 


L.  L.  Glenn 

75  shares 

John  Doe 

45  shares 

Richard  Roe 

30  shares 

1,500 
3,200 
9,000 
800 
5,000 


2,500 

2,000 

15,000 


00 
00 
00 


The  Balance  Sheet  shown  on  page  302  is,  of  course,  applicable  to  the 
corporation  at  this  time. 

In  Cases  III,  IV,  and  V,  an  opportunity  has  been  presented  to  become 
famihar  with  the  more  usual  situations  which  arise  when  non-corporate 
organizations  become  corporations.  Probably  not  many  students  will 
find  occasion  to  handle  more  involved  changes  than  those  which  have 
been  shown.  But  for  the  sake  of  those  who  are  sufficiently  interested 
to  wish  immediately  to  pursue  the  subject  further,  let  us  intrude  upon 
the  domain  of  accounting  texts  just  sufficiently  to  discuss  two  additional 
cases.  The  first  wiU  treat  of  the  L.  L.  Glenn  Company  if  it  incorporates 
for  $20,000.00,  S15,000.00  of  which  is  issued  to  the  old  firm,  and  new 
subscribers  secured  for  some  of  the  additional  capital  stock.  The  last 
case  in  the  series  will  discuss  the  entries  when  the  L.  L.  Glenn  Company 
incorporates  for  only  $8,000.00  and  issues  this  amount  in  full  payment 
for  the  $10,000.00  business  of  the  old  firm. 

Case  VI, — The  L.  L.  Glenn  Company,  Inc.,  was  originated  with  a 
capital  stock  of  $20,000.00,  $15,000.00  of  which  was  issued  to  L.  L. 
Glenn  &  Co.,  for  their  business,  including  its  good  will;  outside  sub- 
scriptions were  secured  for  $3,800.00,  and  $1,200.00  remained  unsub- 
scribed for.  We  shall  present  the  opening  entries,  just  as  previously, 
under  two  conditions:  (A)  The  old  books  to  be  continued;  (B)  A 
new  set  of  books  to  be  employed. 


306  BOOKKEEPING  AND  ACCOUNTING 

Solution  A. — The  old  books  to  be  continued: 


October  1,  19— 
Good  Will 

L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 

To  set  up  good  will  allowed  us  by  The  L.  L. 
Glenn  Co.,  Inc.,  as  per  agreement,  and  to  dis- 
tribute same  among  the  members  of  the  firm. 

1 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the  laws  of 

the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$20,000.00 

divided  into  200  shares,  each  of  a  par 

value  of  $100.00 


Subscriptions 
Unsubscribed  Stock 
Capital  Stock 

The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 


L.  L.  Glenn 

75  shares 

John  Doe 

45  shares 

Richard  Roe 

30  shares 

Frank  Fee 

25  shares 

Benjamin  Tracey 

13  shares 

5,000 


18,800 
1.200 


00 


2,500 
1,500 
1,000 


20,000 


00 
00 
00 


00 


Note  that  Mr.  Fee  subscribed  for  twenty-five  of  the  additional 
shares  of  stock  and  Mr.  Tracey  for  thirteen  shares.  The  stock  not 
subscribed  for  is  carried  in  the  Unsubscribed  Stock  account  as  shown 
above. 

When  the  business  of  L.  L.  Glenn  &  Company  is  transferred  to  the 
Corporation,  The  L-  L.  Glenn  Company,  Inc.,  the  former's  subscrip- 
tion to  $15,000.00  of  tiis  latter's  capital  stock  is  canceled.    The  entry 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    307 

for  this  transfer  and  cancellation  is  exactly  the  same  as  on  page  301, 
but  it  is  here  repeated,  slightly  changed,  for  the  sake  of  convenience: 


October  1,  19— 
L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 
Subscriptions 

Messrs.  L.  L.  Glenn  &  Co.,  have  this  day 
transferred  their  rights  and  interests  in  their 
business  to  the  L.  L.  Glenn  Co.,  Inc.,  as  per 
agreement  recorded  in  the  Minute  Book,  page 

,  in  full  cancellation  of  their  subscriptions 

to  the  Capital  Stock  of  the  Company. 


L.  L.  Glenn 

75  shares 

John  Doe 

45  shares 

Richard  Roe 

30  shares 

7,500 
4,500 
3,000 


15,000 


00 


Before  we  leave  this  topic  let  us  make  the  entry  on  the  assumption 
that  Frank  Fee  paid  $1,000.00  in  cash  on  account  of  his  subscription 
for  twenty-five  shares  of  stock.  The  entry  would  be  made  in  the  Cash 
Book,  of  coiu-se,  and  it  would  be  equivalent  to  the  following  Journal 
entry: 

Date 
Cash  $1,000.00 

Subscriptions  $1 ,000 .  00 

Frank  Fee  paid  cash  on  account  of  his  subscription  to  25 
shares  of  stock. 

Though  it  is  scarcely  necessary  to  show  the  Cash  Book  entry  cor- 
responding to  the  foregoing  Journal  entry,  it  is  herewith  presented: 

Cash  Receipts 


Subscriptions 


Frank  Fee 


1,000 


00 


308 


BOOKKEEPING  AND  ACCOUNTING 


After  all  of  the  foregoing  opening  entries  had  been  posted,  and  before 
uny  routine  transactions  had  occurred,  the  following  Balance  Sheet 
could  be  prepared: 

Balance  Sheet  of  The  L.  L.  Glenn  Company,  Inc.,  as  of  October  1,  19 — 


Cash 

Mdse.  Inventory 

Accounts  Receivable 

Subscriptions 

Furniture  and  Fixtiu-es 

Good  Will 


$2,500.00 
3,200.00 
9,000.00 
2,800.00 
800.00 
5,000.00 


S23,300.C0 


Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  LiabiUties 


$2,500.00 
2,000.00 

4,500.00 


Capital: 
Capital  Stock 
Authorized      $20,000.00 
Less  Unsub- 
scribed Stock  1,200.00    18,800.00 

$23,300.00 


Comments. — (1)  The  balance  of  cash  was  obtained  by  adding  the 
amount  received  from  Mr.  Fee  ($1,000.00)  to  the  balance  transferred 
by  the  firm  of  L.  L.  Glenn  &  Co.,  ($1,500.00). 

(2)  The  Subscriptions  account  in  the  General  Ledger  appears 
as  follows: 

Subscriptions 


19— 

19— 

Oct.  1    L.  L.  Glenn 

$7,500.00 

Oct.  1 

L.  L.  Glenn  &  Co. 

$15,000.00 

John  Doe 

4,500.00 

Frank  Fee 

1,000.00 

Richard  Roe 

3,000.00 

Frank  Fee 

2,500.00 

Benj.  Tracey 

1,300.00 

The  difference  between  the  total  subscriptions  ($18,800.00)  and  the 
amount  canceled  ($16,000.00)  gives  the  balance  still  unpaid  ($2,800.00). 
This  balance  is  an  asset,  because  it  is  a  legal  claim  against  the  sub- 
scribers, and  it  is  so  shown  on  the  Balance  Sheet. 

(3)  Note  how  the  capital  is  shown.  The  amount  authorized  by 
the  officials  of  the  State  was  $20,000.00,  and  of  this  amount  $18,800.00 
had  been  subscribed  or  sold.  Instead  of  showing  the  $1,200.00  of  un- 
subscribed stock  among  the  assets,  it  is  deducted  from  the  total  capital- 
ization so  as  to  arrive  at  the  figure  for  the  real  capital.  This  $18,800.00 
is  quite  frequently  called  *'  issued  stock  "  and  the  unsubscribed  stock, 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    309 

"  unissued  stock."  The  verb  "  issued  *'  is  to  be  restricted  to  its  technic- 
ally legal  sense  and  not  given  its  everyday  meaning.  Thus,  though 
not  all  of  the  subscribed  stock  has  been  physically  issued  or  delivered 
to  the  subscribers,  it  has  been  sold,  and  for  our  present  purposes  it  is 
sufficient  that  we  regard  "  issued  stock  "  and  "  sold  stock  "  as  synon- 
ymous. 

Possibly  another  word  regarding  "  unsubscribed  stock "  would 
be  helpful  to  the  student.  As  was  fully  explained  previously,  when 
two  individuals  decide  to  form  a  partnership,  each  to  invest  $2,500.00, 
and  if  they  then  invest  only  $2,000.00,  the  resulting  entry  would  express 
what  actually  took  place  rather  than  what  was  contemplated.  Similarly 
when  a  corporation  is  organized  with  an  authorized  capital  of  $10,000.00, 
but  issues  only  $8,000.00,  the  essential  facts  would  be  shown  by  the 
following: 


Cash  $8,000.00 


Capital  Stock  $8,000 .  00 


The  fact  that  the  Corporation  was  authorized  to  issue  $10,000.00 
of  stock  need  not  affect  the  entry  to  any  greater  extent  than  a  similar 
intention  on  the  part  of  partners  to  invest  more  than  they  actually  do, 
affects  the  entry  for  the  investment  of  the  members  of  a  firm.  A  slight 
difference  may  be  detected,  however.  Partners  may  increase  or  de- 
crease their  investments  as  occasion  arises.  Corporations  cannot  in- 
crease their  authorized  capitahzation  without  express  authority  from 
certain  state  officials.  Accordingly,  it  has  become  quite  customary  to 
show  on  the  books  of  corporations  the  full  amount  of  authorized  capital, 
irrespective  of  whether  such  stock  has  been  subscribed  for  or  not. 
Surely,  the  amount  unsubscribed  is  no  more  a  corporate  asset  than  is 
the  intention  of  a  partner  to  invest  more  than  he  actually  does  an  asset 
of  the  firm.  Unsubscribed  Stock  should,  therefore,  not  be  regarded 
as  an  asset,  and  if  the  entire  authorized  capital  is  entered,  the  *' un- 
issued "  amount  should  be  deducted  from  the  nominal  amount,  as  shown 
on  the  Balance  Sheet,  page  308: 


Capital  Stock  Authorized     $20,000 .  00 
Less  Unsubscribed  Stock    1,200.00 

Issued  Stox^k  $18,800 .  00 


810 


BOOKKEEPING  AND  ACCOUNTING 


Solution  B. — A  new  set  of  books  to  be  employed: 

(a)  To  close  the  old  partnership  books: 

The  problem  here  is  exactly  the  same  as  in  Case  V,  page  303.  What 
bookkeeping  difference  does  it  make  to  Messrs.  L.  L.  Glenn  &  Co., 
whether  they  sell  their  business  for  $15,000.00  to  a  $75,000.00  or  to  a 
$20,000.00  corporation?  Their  books  will  be  closed  without  regard  to 
the  "  size  "  or  wealth  of  the  buying  (vendee)  corporation. 

(6)  To  open  the  new  corporation  books: 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the  laws  of 

the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$20,000.00 

divided  into  200  shares,  each  of  a  par  value 

value  of  $100.00 

1 
Subscriptions 
Unsubscribed  Stock 
Capital  Stock 
The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 


L.  L.  Glenn 
John  Doe 
Richard  Roe 
Frank  Fee 
Benjamin  Tracey 


75  shares 
45  shares 
30  shares 
25  shares 
13  shares 


Cash 

Mdse.  Inventory 

Accounts  Receivable 

Furniture  and  Fixtures 

Goodwill 

Accounts  Payable 

Notes  Payable 

Subscriptions 
Accepted  the  business  of  L.  L.  Glenn  &  Co. 
in  full  cancellation  of  all  subscriptions  to  the 
capital  stock  of  this  Company. 


18,800 
1.200 


1,500 
3,200 
9,000 
800 
5,000 


20,000 


2,500 

2,000 

15,000 


00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    311 


Cafih 

Subscriptions 
Frank  Fee  paid  cash  on  account  of  his  sub- 
scription to  25  shares  of  stock. 


1,00000 


1,000 


00 


The  opening  Balance  Sheet  has  already  been  shown  (see  page  308). 
There  remains  for  discussion  in  the  present  series,  as  outlined  on  page 
305,  just  another  situation.  This  is  our  seventh  case,  and  deals  with 
the  entries  when  a  partnership  "  sells  out  "  for  less  than  its  net  capital. 

Case  VII. — The  L.  L.  Glenn  Company,  Inc.  has  been  organized 
with  an  authorized  capital  of  $8,000.00,  all  of  which  has  been  issued 
to  the  firm  of  L.  L.  Glenn  &  Company  for  the  latter's  business.  As 
in  the  other  cases,  we  shall  show  how  to  continue  the  old  books  as  well 
as  how  to  introduce  a  new  set. 

Solution  A. — The  old  partnership  books  to  be  continued: 

The  student  should  recall  that  when  the  partnership  received  a 
$5,000.00  profit  for  its  business  (page  301),  the  gain  was  called  good 
will  and  it  was  set  up  as  follows: 


Good  Will 

L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 


$5,000.00 


$2,500.00 
1,500.00 
1,000.00 


Now  that  there  is  a 
suggest  itself: 

L.  L.  Glenn 
John  Doe 
Richard  Roe 
"  Bad  Will " 


loss  of  $2,000.00,  this  solution  may  possibly 


$1,000.00 
600.00 
400.00 


$2,000.00 


Observe  that  the  loss  is  charged  to  each  partner's  account  in  the 
same  proportion  that  each  was  to  share  in  profits.  The  credit  to  the 
logical  opposite  of  good  will  is  wrong,  because  it  is  not  sanctioned  by 
practice.  Still,  no  matter  what  solution  we  finally  agree  upon,  each 
partner's  account  must  be  charged  with  his  share  of  the  loss.  Let  us 
defer  the  solution  for  a  few  moments,  as  we  shall  come  to  it  very  soon. 


312 


BOOKKEEPING  AND  ACCOUNTING 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the  laws  of 

the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$8,000.00 

divided  into  80  shares,  each  of  a  par  value  of 

$100.00 


Subscriptions 
Capital  Stock 

The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 


L.  L.  Glenn 

40  shares 

John  Doe 

24  shares 

Richard  Roe 

16  shares 

L.  L.  Glenn,  Capital 

1 

John  Doe,  Capital 

Richard  Roe,  Capita] 

[ 

Subscriptions 

Surplus 

Cancellation  of  all  the  subscriptions  to  the 
Capital  Stock  of  this  Company  by  the  trans- 
fer of  the  business  of  Messrs.  L.  L.  Glenn  & 
Co.,  all  as  per  agreement  entered  into  this 
day,  and  shown  in  the  Minute  Book,  pages 
—  to—. 


Value  of  the  business  transferred 

to  this  Company 
Subscriptions  canceled 


$10,000.00 
8,000.00 


Profit  to  the  Company         $2,000 .  00 


8,000 


00 


8,000 


00 


5,000 
3,000 
2.000 


00 
00 
00 


8,000 
2,000 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    313 

If  the  student  will  recall  that  the  firm  of  L.  L.  Glenn  &  Co.,  is, 
in  the  eyes  of  the  law,  a  separate  and  distinct  organization  from  the 
corporation  of  The  L.  L.  Glenn  Company,  Inc.,  it  should  not  be  difficult 
for  hun  to  understand  how  the  firm  could  lose  $2,000.00  (a  $10,000.00 
business  sold  for  $8,000.00)  while  the  corporation  made  $2,000.00  on 
the  transaction  (a  $10,000.00  business  bought  for  $8,000.00).  This 
profit  to  the  corporation  is  carried  to  the  Profit  and  Loss  account,  usually 
called  the  Surplus  account  as  will  be  explained  later,  that  is,  on  pages 
334  and  335  of  the  text. 

But,  the  question  may  be  asked,  where  in  the  books  is  a  record 
found  of  the  firm's  loss  of  $2,000.00?  This  is  not  specifically  shown 
where  the  old  books  are  continued  as  corporation  books,  but  it  is  more 
clearly  shown  in  Solution  B  (page  316).  Still,  the  apparent  loss  is 
clear  enough.  Mr.  L.  L.  Glenn,  for  example,  received  only  $4,000.00 
of  stock  at  par  for  his  $5,000.00  interest  in  the  old  firm,  as  shown  by 
his  old  Ledger  account.  The  loss  of  the  other  members  of  the  firm 
may  be  similarly  traced.  Nevertheless  the  loss  may  be,  and  probably 
is,  only  an  apparent  one.  Is  it  not  a  fact  that  the  face  or  par  value  of 
stock  and  its  market  value  is  not  the  same?  Thus,  Bethlehem  Steel 
stock,  with  a  par  value  of  $100.00  was  quoted  at  $700.00,  in  1916, 
and  similarly  for  many  others.  There  is  still  another  way  to  view  the 
problem.  Surely  the  business  is  intrinsically  worth  as  much  immediately 
after  incorporation  as  just  prior  thereto.  This  value  is  $10,000.00. 
(Total  assets  $14,500.00,  less  total  habilities  $4,500.00.)  The  owner- 
ship of  the  business  is  divided  into  80  shares  (SOX $100.00  =  $8,000.00, 
authorized  capitalization).  One  share  is  intrinsically  worth  -^  of 
$10,000.00,  or  $125.00.  Mr.  Glenn's  forty  shares  are  therefore  worth 
40  X  $125.00,  or  $5,000.00,  exactly  the  book  value  of  the  interest  in  the 
firm  of  L.  L.  Glenn  &  Co.,  which  he  transferred  to  the  corporation  in 
full  payment  of  his  subscription  to  forty  of  the  latter's  shares.  Thus, 
we  find  another  illustration  of  the  economic  law  which  we  pointed  out 
when  conmaencing  the  study  of  bookkeeping,  namely,  that  in  every 
transaction  equal  values  are  exchanged.  By  similar  reasoning,  the 
student  may  prove  to  his  own  satisfaction  that  Messrs.  Doe  and  Roe 
exchanged  their  respective  interests  in  the  old  firm  for  equivalent 
shares  in  the  new  company.  Why  the  capital  stock  should  have  been 
placed  at  a  lower  figure  than  the  book  value  of  the  assets  acquired  can- 
not be  discussed  here.  Articles  on  corporate  finance  and  corporation 
taxes  must  be  consulted  for  further  fight  on  this  interesting  and  some- 
what difficult  problem. 


314 


BOOKKEEPING  AND  ACCOUNTING 


Though  most  students  could  do  so  for  themselves,  let  us  present 
the  Balance  Sheet  of  the  corporation  now: 


Balance  Sheet  of  The  L.  L.  Glenn  Company,  Inc.,  as  of  October  1,  19 — 


Assets: 
Cash 

Merchandise  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 


$1,500.00 

3,200.00 

9,000.00 

800.00 


$14,500.00 


Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
Capital  Stock 
Surplus 


$2,500.00 
2,000.00 

4,500.00 


8,000  00 
2,000.00 

$14,500.00 


Solution  B. — A  new  set  of  books  to  be  employed: 
(a)  To  close  the  old  partnership  books: 

The  first  entry  is  for  the  purpose  of  transferring  the  assets  to  the 
vendees,  The  L.  L.  Glenn  Company,  Inc. 


October  1,  19— 

The  L.  L.  Glenn  Company,  Inc. 
Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 

We  have  this  day  transferred  all  our  assets 
to  the  L.  L.  Glenn  Co.,  Inc.,  as  per  agreement. 


Accounts  Payable 
Notes  Payable 

The  L.  L.  Glenn  Co.,  Inc. 

The  L.  L.  Glenn  Co.,  Inc.,  has  this  day 
assumed  all  our  existing  liabilities,  as  per 
agreement. 


14,500 


2,500 
2,000 


00 


1,500 

3,200 

9,000 

800 


4,500 


00 
00 
00 
00 


00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    315 


At  this  point,  the  accounts  on  our  books  which  are  still  open  are  as 
follows: 

L.  L.  Glenn,  Capital 


19— 

Oct.  1      Net  Capital 


$5,000.00 


John  Doe,  Capital 


19— 

Oct.  1      Net  Capital 


$3,000.00 


Richard  Pcoe,  Capital 


19— 

Oct.  1      Net  Capital 


The  L.  L.  Glenn  Company,  Inc. 


$2,000.00 


19— 
Oct.  1 


$14,500.00 


19— 
Oct.  1 


$4,500.00 


On  pages  295-296,  we  presented  two  types  of  entries  to  record  the 
payment  by  The  L.  L.  Glenn  Company,  Inc.  of  their  indebtedness  to  the 
firm  of  L.  L.  Glenn  &  Company,  as  shown  on  the  books  of  the  latter. 
For  the  present  purpose,  we  shall  employ  the  second  of  the  two  solutions 
previously  shown,  as  this  one  will  help  to  make  clearer  the  effect  upon 
the  capital  accounts  of  the  respective  members  of  the  firm,  when  the 
corporation  pays  less  than  the  balance  of  its  account  in  full  settlement 
thereof.  In  showing  this  solution,  we  also  redeem  our  promise  (page 
311)  to  present  this  entry  when  closing  the  books  of  the  old  firm. 

October  1,  19— 
The  L.  L.  Glenn  Company  Stock        $8,000.00 
?  2,000.00 

The  L.  L.  Glenn  Company,  Inc.  $10,000.00 

Received  80  shares  of  stock  in  full  payment  of  our  business 
as  per  agreement. 

Observe  how  the  corporation  canceled  its  book  debt  of  $10,000.00 
by  paying  only  $8,000.00  of  its  stock.  To  what  account  should  the 
difference  of  $2,000.00  be  charged?    Is  it  not  akin  to  a  discount  allowed 


316 


BOOKKEEPING  AND  ACCOUNTING 


a  customer  who  cancels  his  indebtedness  to  us  of  $1,000.00  by  giving 
us  only  $980.00?  The  amount  not  received  is  surely  to  be  treated  like 
a  loss.  It  may  either  be  charged  to  the  Loss  and  Gain  account  and  then 
transferred  in  proper  proportions  to  the  capital  accounts  of  the  firm, 
or  better,  it  may  be  charged  to  the  partners'  accounts  at  once.  We 
thus  have: 


October  1,  19— 

The  L.  L.  Glenn  Company  Stock 
L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 

The  L.  L.  Glenn  Company,  Inc. 

Received  80  shares  of  stock  in  full  payment 
for  our  business  transferred  this  day  to  The 
L.  L.  Glenn  Co.,  Inc.,  as  per  agreement,  the 
difference  of  $2000.00  being  divided  as 
follows: 

L.  L.  Glenn,  50%  or  $1000.00 
John  Doe,  30%  or  600.00 
Richard  Roe,  20%  or      400.00 


8,000 

1,000 

600 

400 


10,000 


00 


The  final  entry  in  the  old  books  is  for  the  purpose  of  closing  the 
accounts  which  are  still  open: 


October  1,  19— 

L.  L.  Glenn,  Capital 
John  Doe,  Capital 
Richard  Roe,  Capital 

The  L.  L,  Glenn  Company  Stock 

To  close  the  accounts  of  the  members  of  this 
firm  by  distributing  the  80  shares  of  The  L.  L. 
Glenn  Company  Stock: 


L.  L.  Glenn 
John  Doe 
Richard  Roe 


40  shares 
24  shares 
16  shares 


4,000 
2,400 
1,600 


8,000 


00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    317 

(6)  To  open  the  new  corporation  books: 


October  1,  19— 

THE  L.  L.  GLENN  COMPANY,  INC., 

has  this  day  incorporated  under  the  laws  of 

the  State  of  New  York  with  an 

AUTHORIZED  CAPITAL 

of 

$8,000.00 

divided  into  80  shares,  each  of  a  par  value  of 

$100.00 


Subscriptions 
Capital  Stock 

The  following  are  the  subscribers  to  all  of 
the  Capital  Stock  of  this  Company: 


L.  L.  Glenn 
John  Doe 
Richard  Roe 


40  shares 
24  shares 
16  shares 


1 


Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 

Accounts  Payable 

Notes  Payable 

Subscriptions 

Surplus 

Accepted  in  full  of  all  subscriptions  to  the 
Capital  Stock  of  this  Company,  the  business 
of  L.  L.  Glenn  &  Company,  as  per  agreement 

recorded  in  the  Minute  Book,  page .    All 

of  the  assets  of  the  old  firm  have  been  duly 
transferred  to  us,  and  we  have  assumed  full 
responsibility  for  the  liquidation  of  all  liabili- 
ties of  the  firm. 


8,000 


1,500 

3,200 

9,000 

800 


00 


8,000 


2,500 
2,000 
8,000 
2,000 


00 


318  BOOKKEEPING  AND  ACCOUNTING 

Questions 

1.  What  is  meant  by  the  opening  entry  for  a  corporation? 

2.  (a)  What  do  you  understand  by  Subscriptions  account? 
(6)  How  is  this  account  opened? 

(c)  What  does  its  balance  denote? 

(d)  How  is  it  finally  closed? 

3.  How  can  you  tell  the  number  of  shares  to  which  individual  subscribers 
have  subscribed? 

4.  How  can  one  ascertain  how  many  shares  of  stock  are  owned  by  individual 
stockholders? 

6.  What  is  the  relationship  between  the  Capital  Stock  account  and  the 
Stock  Ledger? 

6.  Differentiate  between  subscribed  stock,  issued  stock  and  unissued  stock. 

7.  What  adjustment  is  made  on  the  books  of  a  partnership  to  record  the 
fact  that  the  business  of  the  partnership  had  be  n  sold  to  a  corporation  for  stock 
of  the  corporation  ha\dng  a  par  value  less  than  the  net  capital  shown  on  the 
books  of  the  partnership? 

8.  Tell  how  the  corresponding  adjustment  would  be  made  on  the  books  of 
the  corporation,  that  is,  how  the  corporation  would  show  that  it  has  issued  stock 
having  a  par  value  less  than  the  net  worth  of  the  business  acquired  for  the 
same  stock. 

Exercise  51A 

Frank  R.  Fee,  Samuel  D.  Seabury  a'^^  Thomas  Wilson  organized  the  Frank 
R.  Fee  Company  on  October  1,  19 — ,  under  the  laws  of  the  State  of  New  York, 
with  an  authorized  capitalization  of  $100,000.00,  divided  into  1000  shares  of 
$100.00  each.  The  subscriptions  were  as  follows:  Frank  R.  Fee,  500  shares 
at  par,  Samuel  D.  Seabury,  300  shares  at  par,  and  Thomas  Wilson,  200  shares 
at  par.  The  subscribers  paid  for  their  subscriptions  in  full  on  the  same  day. 
Show  the  opening  entry  for  the  corporation. 

Exercise  51B 

Show  the  entry  for  the  Frank  R.  Fee  Company  on  the  assumption  that  sub- 
scriptions were  as  follows,  instead  of  as  given  in  Exercise  51^,  above:  Frank 
R.  Fee,  100  shares,  Samuel  D.  Seabury,  100  shares  and  Thomas  Wilson,  100 
shares,  all  at  par.    These  subscriptions  were  paid  for  at  once. 

Exercise  51C 

Show  the  opening  entry  for  Exercise  51B,  above,  on  the  assumption  that  each 
of  the  subscribers  paid  only  50%  of  their  subscriptions  at  once,  in  cash. 

Exercise  51D 

Show  the  Balance  Sheet  for  the  Frank  R.  Fee  Company  as  of  October  1, 
19 — ,  on  the  basis  of  Exercise  51 C,  above. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    319 


Exercise  5  IE 

On  November  5,  19 — ,  Mr.  George  Randolph  Parks,  who  is  in  business  for 
himself,  shows  a  net  worth  of  $14,800.00,  as  disclosed  by  the  following  Balance 
Sheet: 

Balance  Sheet  of  George  Randolph  Parks  as  of  November  5,  19 — 


Cash 

Merchandise  Inventory- 
Accounts  Receivable 
Furniture  and  Fixtures 


$3,500.00 

6,100.00 

5,600.00 

650.00 

$15,850.00 


Accounts  Payable 
George  R.  Parks,  Capital 


$1,050.00 
14,800.00 


$15,850.00 


Mr.  Parks  decides  to  incorporate  his  business  under  the  laws  of  the  State 
of  New  York  with  an  authorized  capital  of  $15,000.00.  He  secures  George  R. 
Parks,  Jr.  to  subscribe  to  one  share,  Mrs.  George  R.  Parks  to  subscribe  to 
another  share,  and  the  balance  he  subscribes  for  himself. 

(1)  Show  the  opening  entries  on  the  new  books  of  the  corporation.    Sub- 

scriptions are  all  paid,  as  follows:   Mrs.  Parks  and  Mr.  Parks,  Jr.,  in 
cash,  Mr.  Parks  by  transferring  his  business  to  the  corporation. 

(2)  Show  the  closing  entries  on  the  books  of  the  old  concern. 

Exercise  5 IF 

Assuming  that  in  Exercise  51E,  above,  George  R.  Parks  had  incorporated 
his  business  for  $20,000.00  and  that  all  the  conditions  of  Exercise  51E  pre- 
vailed, save  that  Mr.  Parks  subscribed  for  $19,800.00  worth  of  stock,  all  of 
which  was  issued  to  him  upon  the  transfer  by  him  of  his  business  to  the  cor- 
poration, show: 

(1)  The  entries  on  the  new  books  of  the  corporation. 

(2)  The  closing  entries  on  the  books  of  the  old  concern. 

(3)  The  adjustment  entries  on  the  books  of  the  old  concern  on  the  assumption 

that  the  old  books  were  to  be  continued  in  use  by  the  corporation. 

(4)  The  opening  Balance  Sheet. 

Exercise  51G 

Assuming  that  in  Exercise  51.E^,  above,  George  R.  Parks  had  incorporated 
nis  business  for  $10,000.00,  that  he  had  subscribed  for  $9,800.00  worth  of  stock, 
which  was  issued  to  him  by  the  corporation  as  payment  for  the  transfer  of  the 
old  business  to  the  corporation,  and  that  all  the  other  conditions  of  Exercise 
51E  prevailed,  show: 

(1)  The  entries  on  the  new  books  of  the  corporation. 

(2)  The  closing  entries  on  the  books  of  the  old  concern. 


320 


BOOKKEEPING  AND  ACCOUNTING 


(3)  The  adjustment  entries  on  the  books  of  the  old  concern  on  the  assump- 

tion that  the  old  books  were  to  be  continued  in  use  by  the  corporation. 

(4)  The  opening  Balance  Sheet  of  the  corporation. 

Exercise  51H 

The  following  balance  sheet  shows  the  condition  of  a  partnership  as  of 
November  1,  19 — : 

Balance  Sheet  of  Joseph  H.  Bristol  &  Co.  as  of  November  1,  19 — 


Cash 

Accounts  Receivable 

Merchandise  Inventory 

Furniture  and  Fixtures 

Automobiles 


$6,710.00 

14,925.00 

7,038.00 

1,190.00 

3,200.00 


$33,063.00 


Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Jos.  H.  Bristol,  Cap. 
Howard  M.  Bristol,  Cap. 
Samuel  W.  Klees,  Cap. 


$8,063.00 
5,000.00 

$13,063.00 

10,000.00 
6,000.00 
4,000.00 

$33,063.00 


On  November  1,  19 — ,  Messrs.  Bristol,  Bristol  and  Klees  organize  the 
National  Trading  Co.,  Inc.,  a  corporation  with  an  authorized  capital  of 
$20,000.00,  divided  into  shares  having  a  par  value  of  $100.00  each,  and  sub- 
scribed for  as  follows:  Jos.  H.  Bristol,  100  shares  at  par,  Howard  M.  Bristol, 
60  shares  at  par  and  Samuel  W.  Klees,  40  shares  at  par.  These  subscriptions 
are  canceled  by  the  transfer  of  the  assets  of  the  old  firm  to  the  corporation 
and  by  the  assumption  by  the  corporation  of  the  outstanding  liabilities  of 
the  old  firm.    Show  the  resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  the  old  books  were 

to  be  continued  in  use  by  the  corporation. 

(4)  Show  the  opening  Balance  Sheet.  I 

Exercise  511 

Assume  that  Messrs.  Bristol,  Bristol  and  Klees  organize  a  corporation  with  an 
authorized  capital  of  $25,000.00,  all  of  which  was  issued  to  the  members  of  the 
old  concern  for  their  right,  title  and  interest  in  the  net  capital  of  the  old  firm, 
ana  that  all  of  the  other  conditions  of  Exercise  51Hy  above,  remain  unchanged. 
Show  the  resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  they  were  to  be 

continued  as  the  corporation  books. 

(4)  Show  the.  opening  Balance  Sheet. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    321 

Exercise  51J 

Assume  that  Messrs.  Bristol,  Bristol  and  Klees  organize  a  corporation 
with  an  authorized  capital  of  $18,000.00,  all  of  which  was  issued  to  the  mem- 
bers of  the  old  concern  for  their  right,  title  and  interest  in  the  net  capital  of 
the  old  firm,  and  that  all  the  other  conditions  of  Exercise  51^,  above,  remain 
unchanged.    Show  the  resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

*(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  they  were  to  be 

continued  as  the  corporation  books. 
(4)  Show  the  opening  Balance  Sheet. 

Exercise  5  IK 

Now  assume  that  Messrs.  Bristol,  Bristol  and  Klees  (see  Exercise  51^, 
above)  organize  the  National  Trading  Co.,  Inc.,  with  an  authorized  capital  of 
$50,000.00.  Subscriptions  were  as  follows:  Jos.  H.  Bristol,  $20,000.00,  Howard 
M.  Bristol,  $12,000.00  and  Samuel  W.  Klees,  $8,000.00;  Frederick  Zom, 
$1,000.00,  Frederick  B.  Robinson,  $1,000.00.  Messrs.  Bristol  and  Klees  can-, 
celed  their  subscriptions  by  immediately  transferring  to  the  corporation  all 
their  right,  title  and  interest  in  the  old  firm.  Messrs.  Zorn  and  Robinson  each 
paid  50%  of  their  subscription  in  cash  on  November  1,  19 — .  Show  the  re- 
sulting entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  they  were  to  be 

continued  as  the  corporation  books. 

(4)  Show  the  opening  Balance  Sheet. 

52.  Miscellaneous  Corporation  Topics 

Opening  entries  under  various  conditions  have  been  discussed  in 
Cases  I  to  VII  inclusive.  Though  the  ordinary  routine  transactions 
are  recorded  without  regard  to  the  form  of  the  ownership — whether 
sole  proprietorship,  partnership  or  corporation — ^nevertheless  certain 
details  still  remain  for  treatment,  and  these  will  be  considered  in  the 
following  pages.  It  should  be  obvious  that  corporation  bookkeeping 
and  accounting  cannot  be  completely  treated  in  this  text,  for  large  books 
have  been  written  on  this  subject  without  exhausting  it.  Accordingly, 
we  must  select  from  the  mass  of  material  at  our  disposal  the  most  im- 
portant items.  Our  principle  of  selection  will  be  governed  solely  by 
two  tests: 

(a)  What  should  the  student  become  familiar  with  if  he  is  not  to 
continue  his  study  of  accounting? 


322  BOOKKEEPING  AND  ACCOUNTING 

(6)  What  can  he  grasp  and  understand  at  this  stage  of  his  book- 
keeping education? 

Common  Capital  Stock  vs.  Preferred  Capital  Stock 

When  we  speak  of  the  "  stock,'*  the  "  capital  stock "  or  the 
"  shares  "  of  a  corporation,  we  usually  have  in  mind  the  certificates 
of  ownership  issued  by  an  incorporated  company.  Each  of  these  certi- 
ficates indicates  on  its  face  the  number  of  shares  represented  by  the 
particular  certificate  in  question.  Thus,  if  a  company  is  incorporated 
for  $20,000.00,  with  shares  of  a  par  or  face  value  of  $100.00,  then  the 
authorized  capital  is  divided  into  two  hundred  parts.  A  person  who 
owns  a  certificate  for  six  shares  is  the  owner  of  t^  of  the  authorized 
capital  of  the  organization.  But,  as  we  learned  previously,  the  issued 
capital  stock  must  not  necessarily  be  equal  to  the  full  amount  authorized. 
In  this  case,  if  only  $15,000.00  worth  of  stock  had  been  issued,  then  the 
owner  of  six  shares  would  own  yf^  of  the  net  capital  of  the  corporation. 
The  net  capital  may,  of  course,  be  more  or  less  than  the  authorized 
capital  or  even  of  the  issued  capital.  For  while  the  issued  capital  indi- 
cates, with  quahfications  which  we  can  afford  to  ignore  in  an  elementary 
accounting  discussion,  the  investment  of  the  owners,  the  net  capital  is 
the  difference  between  the  total  assets  and  the  total  liabilities  of  the 
company.  It  is  thus  seen  that  the  net  capital  reflects  the  profits  and 
losses  of  the  business  as  well  as  the  contribution  or  investment  of 
capital. 

A  Stock  Certificate  is  merely  one  of  the  stockholders'  or  shareholders' 
evidences  of  ownership  of  a  part  or  fraction  of  a  corporation.  It 
usually  entitles  the  owner,  for  each  share  owned,  to  one  vote  at  meetings 
of  stockholders,  and  to  one  part  of  the  profits  earned,  which  the  directors, 
who  have  been  elected  by  the  stockholders  to  manage  the  corporation, 
decide  to  distribute  as  dividends.  At  dissolution,  each  share  entitles 
the  owner  thereof,  to  one  part  of  the  net  capital,  which  should  be  in  cash, 
and  which  remains  after  converting  all  the  assets  into  cash  and  after 
paying  all  debts.  The  "  part  "  referred  to  is  determined,  should  there 
be  any  doubt  in  the  student's  mind  regarding  it,  as  follows: 

1  share 
number  of  shares  issued 

so  that  if  150  shares  had  been  issued,  the  owner  of  one  share  would  be 
entitled  to  riiyth  or  to  two-thirds  of  one  per  cent  of  the  amount  on 
hand  in  the  treasury  of  the  corporation  after  liquidating  or  paying  off 
all  its  obligations. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    323 

So  far  we  have  been  dealing  with  the  ordinary  shares  of  capital 
stock.  This  is  called  Common  Stock.  It  is  the  ordinary,  the  usual, 
the  common  shares  into  which  the  capital  stock  of  a  corporation  has 
been  divided.  Differentiated  from  the  common  stock  is  the  so-called 
Preferred  Stock.  Just  why  there  should  be  more  than  one  class  of 
stock  is  a  matter  which  may  well  be  left  for  texts  in  corporate  finance 
to  discuss.  Here  we  are  simply  concerned  with  the  existence  of  such 
preferential  shares,  and  after  very  briefly  referring  to  their  chief 
distinguishing  characteristics,  we  shall  present  the  bookkeeping  in- 
volved. 

The  owners  of  a  business  are  primarily  interested  in  two  vital  matters 
concerning  the  organization,  namely,  its  condition  and  its  progress: 
How  much  is  it  worth;  and  how  is  it  getting  along?  Stockholders  have 
this  interest  in  common  with  owners  of  unincorporated  enterprises.  But 
if  stockholders  have  a  greater  interest  in  one  than  in  the  other  of  the  two 
questions,  it  is  in  the  profits  rather  than  in  the  net  capital,  because, 
aside  from  speculators,  they  seek  interest  or  profit-earning  investments 
rather  than  "  trades."  Preferred  stock  increases  the  chances  of  secur- 
ing regular  profits  by  specifying  that  to  the  owners  of  such  stock  should 
be  paid  any  profits  (dividends)  before  the  owners  of  common  stock 
are  entitled  to  any.  Hence  the  need  of  stating  the  rate  of  dividends 
on  preferred  stock,  a  matter  which  is  unnecessary  in  the  case  of  common 
stock  where  the  distribution  of  profits  is  governed  by  the  amount  of 
the  net  profits.  We  thus  have  "  6%  Preferred  Stock,"  "  7%  Preferred 
Capital  Stock,"  etc. 

In  case  of  a  poor  year's  business,  even  the  holders  of  preferred  stock 
may  not  obtain  any  dividends.  This  is  so  because  dividends  are  not 
guaranteed  on  preferred  stock  unless  profits,  sufficient  in  amount  to 
pay  the  dividends,  have  been  earned.  Accordingly,  if  only  enough  has 
been  made  to  pay  3%  to  preferred  stockholders,  despite  the  fact  that 
they  own  5%  preferred  stock,  the  2%  unearned  would  not  be  paid. 
Moreover,  if  no  profits  were  earned,  the  entire  dividend  would  be  impaid 


Cimiulative  Preferred  Stock  is  the  term  applied  to  preferred  stock 
which  aims  ultimately  to  secure  to  its  holders  the  full  amount  of  divi- 
dends specified.  It  is  provided  by  the  agreement  which  results  in  the 
issue  of  such  cumulative  preferred  stock,  that  if  dividends  during  any 
period  are  passed  because  of  the  financial  inabihty  of  the  corporation 
to  meet  the  dividend  requirement,  such  passed  dividends  shall  be  paid 
in  the  future  before  the  common  stockholders  shall  receive  any  dividends 
at  all.    This  characteristic  of  cumulative  stock  makes  it,  of  course,  a 


324  BOOKKEEPING  AND  ACCOUNTING 

more  favorable  form  of  investment  to  the  public  than  ordinary  pre- 
ferred stock. 

We  have  pointed  out  the  chief  advantages  accruing  to  the  holders  of 
preferred  stock.  Other  preferences  may  be  included,  but  each  of 
them  must  be  clearly  stated  to  be  effective.  Among  these  additional 
benefits  which  may  be  included  if  contracted  for,  is  that,  upon  dissolu- 
tion of  the  corporation,  the  holders  of  such  preferred  stock  shall  be  paid 
in  full  before  common  stockholders  are  paid  their  share.  Other  possible 
advantages  and  some  disadvantages  will  not  be  discussed  here. 

It  is  still  necessary  to  show  the  entries  when  preferred  stock  has 
been  authorized.  For  this  purpose,  let  us  assume  that  a  corporation 
is  organized  with  an  authorized  capital  of  $20,000.00,  $15,000.00  com- 
mon stock  and  $5,000.00  preferred  stock,  all  of  which  has  been  sub- 
scribed for.  As  it  is  desirable  to  separate  the  two  classes  of  stock,  the 
following  solutions  are  employed: 

Subscriptions  to  Common  Capital  Stock        $15,000.00 

Common  Capital  Stock  $15,000.00 

(Accepted  the  following  subscriptions,  etc.) 

Subscriptions  to  Preferred  Capital  Stock       $5,000.00 

Preferred  Capital  Stock  $5,000 .  00 

(Accepted  the  following  subscriptions,  etc.) 

When  John  Jones,  the  subscriber  to  eight  shares  of  common  stock, 
pays  for  his  subscription  in  cash,  an  entry  is  made  on  the  receipt  side 
of  the  Cash  Book  equivalent  to  the  following  type  Journal  entry: 

Cash  $800.00 

Subscriptions  to  Common  Capital  Stock  $800 .  00 

After  all  the  subscriptions  have  been  paid,  the  condition  would  be 
thus  expressed: 


Cask  $20,000.00 


$20,000.00 


Capital: 
Conmion  Stock  $15,000.00 

Preferred  Stock  5,000 .  00 

$20,000.00 


Note  that  it  is  quite  indifferent  whether  the  term  "  Common  Stock  " 
or  the  term  "  Common  Capital  Stock  "  is  employed. 

Let  us  now  consider  another  problem.    Assume  that  the  same 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    325 

corporation  secured  subscriptions  to  only  $11,000.00  of  common  stock 
and  to  $3,500.00  of  preferred  stock.  The  following  entries  record  the 
acceptance  of  the  subscriptions: 

Subscriptions  to  Common  Stock      $11,000.00 
Unsubscribed  Common  Stock  4,000.00 

Common  Stock  $15,000.00 

Subscriptions  to  Preferred  Stock       $3,500.00 
Unsubscribed  Preferred  Stock  1,500.00 

Preferred  Stock  $5,000.00 

The  financial  condition  of  the  company,  after  all  the  subscriptions 
have  been  collected,  may  be  thus  expressed: 


Assets: 
Cash  $14,500.00 


$14,500.00 


Capital: 
Common  Stock  Authorized  $15,000.00 
Less  unsubscribed  4,000 .  00 

Common  Stock  Issued  $11 ,000 .  00 

Preferred  Stock  Authorized   $5,000.00 
unsubscribed  1 ,  500 .  00 


Preferred  Stock  Issued  3,500.00 

$14,500.00 


It  would  be  interesting  to  consider  the  problems  presented  when  a 
partnership  or  a  sole  proprietorship  is  converted  into  a  corporation, 
having  both  conmion  and  preferred  stock,  under  the  conditions  discussed 
in  Cases  II  to  VII,  inclusive,  but  this  exercise  must  be  left  to  the  student 
for  treatment  and  solution.  All  that  we  have  space  for  is  to  present  the 
Balance  Sheet  of  the  L.  L.  Glenn  Company,  Inc.,  as  it  would  appear  on 
October  1,  19 — ,  under  the  following  conditions: 

(o)  Authorized  capital  $20,000.00,  $10,000.00  common  and  $10,000.00 

preferred. 
(6)  Paid  for  the  old  firm  of  L.  L.  Glenn  &  Company,  $15,000.00, 

one-half  each  in  common  and  in  preferred  stock,  respectively. 

(c)  Others  subscribed  to  $2,000.00  of  common  stock  and  $1,200.00 

of  preferred  stock. 

(d)  Other  subscribers  paid  cash  to  cancel  $800.00  subscriptions  to 

conmion  stock  and  $200.00  to  preferred  stock. 


326 


BOOKKEEPING  AND  ACCOUNTING 


Under  the  foregoing  conditions,  the  Balance  Sheet  would  present 
the  following  appearance: 

Balance  Sheet  of  The  L.  L.  Glenn  Company,  Inc.,  as  of  October  1,  19 — 


Cash 

Mdse.  Inventory 
Accounts  Receivable 
Subscriptions  to 

Common  Stock 
Subscriptions  to 

Preferred  Stock 
Furniture  and  Fixtures    800 .  00 
GoodWiU  5,000.00 


$2,500.00 
3,200.00 
9,000.00 

1,200.00 

1,000.00 


$22,700.00 


Liabilities: 

Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
Authorized  Com- 
mon Stock  $10,000.00 
Less  unsubscribed        500 .  00 


$2,500.00 
2,000.00 

$4,500.00 


9,500.00 


Authorized  Pre- 
ferred Stock       $10,000.00 
Less  unsubscribed      1 ,300 .  00 


8,700.00 
$22,700.00 


Though  almost  too  difficult  an  exercise  for  the  average  student,  it 
would  prove  a  very  profitable  task  to  trace  the  changes  in  the  entries 
under  Case  V  (pages  301-304)  which  would  be  necessary  to  incorporate 
the  assumption  just  made  and  which  resulted  in  the  foregoing  Balance 
Sheet.     It  is  recommended  as  an  optional  exercise. 

Transfer  of  Stock. — We  have  already  learned  that  a  certificate  of 
stock  is  the  evidence  of  a  part  interest  in  a  corporation.  A  form  of 
such  certificate  was  shown  on  page  289.  The  reverse  side  of  the  same 
certificate  is  presented  on  the  following  page. 

If  John  Doe,  the  owner  of  fifteen  shares,  sold  his  holdings  to  Thomas 
Smith,  he  would  wish  his  stock  ''  transferred  "  to  Mr.  Smith.  The 
first  step  would  consist  of  his  filHng  in  the  transfer  form  just  shown, 
directing  the  corporation  to  make  the  necessary  transfer.  It  is  desirable 
that  a  record  be  kept  of  all  shareholders  for  the  purpose  of  notifying 
them  of  general  and  special  meetings,  sending  them  their  dividends,  and 
finally  because  the  law  requires  that  such  records  be  kept.  The  formal 
transfer  consists  of  canceling  Mr.  Doe's  old  certificate,  and  issuing  a 
new  one  to  Mr.  Smith  in  place  of  the  old  one.  A  note  of  the  transfer  is 
made  on  the  stub  from  which  the  original  certificate  was  taken,  (see 
space  provided  for  this  purpose  on  script  illustration,  page  289)  and  it 
is  also  quite  customary  to  attach  the  old  certificate,  marked  ''  canceled  '* 
across  its  face,  to  its  corresponding  stub. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    327 


lOAJjnM  jaKi/iOAin/nijmnsiiyiia  iiomiaiiui* 
moHUM  ynn3uiMjJUi3*3m  jiaijiiimjiu  iOJWJ 

»UIKUnil3Uima/3HV)l3HlHlM<UI<US3l«l03iSim 

ijaMii9iss¥SBUMinmmaiS3iu  30UOH 


In  small  or  "  close  **  corporations,  it  is  hardly  essential  to  keep  a 
so-called  Transfer  Journal,  but  as  the  law  (in  New  York)  requires  that  a 
record  of  all  transfers  be  kept,  it  is  well  to  become  familiar  with  a  form 
well  adapted  to  this  requirement.  Its  bookkeeping  purpose  is  to 
transfer  the  account  showing  Mr.  Doe  to  be  the  owner  of  fifteen  shares 
to  the  account  of  Mr.  Smith.     Basically,  this  is  what  is  desired: 


John  Doe  $1,500.00 

Thomas  Smith  $1,500.00 

Transfer  of  15  shares  by  Mr.  Doe  to  Mr.  Smith. 


328  BOOKKEEPING  AND  ACCOUNTING 

The  form  on  page  329  meets  the  requirements  of  the  State  of  New 
York  in  so  far  as  a  record  of  stock  transfers  and  stock  ownership  is 
concerned. 

.,  ,     ..       .  ^    f  Depreciation 

Valuation  Accounts  i    „   ,  tn  i-x 
[    Bad  Debts 

Depreciation. — Everyone  knows  that  nothing  lasts  forever.  The 
machinery,  the  tools  and  the  fixtures  of  a  concern  wear  out.  Of  course 
this  is  just  as  true  of  the  property  of  a  partnership  as  it  is  of  a  corpora- 
tion, so  why  introduce  the  discussion  here?  It  is  a  comparatively 
difficult  subject,  and  was  postponed  until  this  point,  not  because  of  its 
pecuhar  relationship  to  corporation  accounting,  but  in  order  to  delay 
presentation  as  long  as  possible. 

A  machine  becomes  less  valuable  with  age.  This  factor  of  time  does 
not  refer  alone  to  the  fact  that  a  machine  in  use  suffers  from  wear  and 
tear  due  to  length  and  amount  of  service  rendered,  but  also  takes  into 
consideration  what  is  called  '*  obsolescence."  Obsolescence  refers  to 
the  relative  loss  caused  by  the  fact  that  new  inventions  make  it  un- 
profitable to  continue  in  operation  a  machine  still  able  to  render  service. 
Thus,  if  a  printing  machine  installed  two  years  ago  was  found  to  be  able 
to  produce  only  sixty  per  cent  of  the  work  produced  by  a  machine  which 
was  just  invented,  and  this  without  much  greater  cost,  then  the  older 
machine,  though  practically  as  *'  good  as  new  "  might  have  to  be  dis- 
carded because  the  shop  could  not  afford  to  compete  against  other 
shops  utiHzing  the  newer  device. 

The  reduced  value  to  an  organization  of  machinery  and  other  similar 
property  through  wear  and  tear  and  through  obsolescence,  must  be 
regarded  as  a  cost  or  expense  in  determining  the  net  profit. 

As  an  illustration,  consider  the  following  account: 
Machinery  This  machinery  was  bought  at  the  beginning 

of  the  year.     It  is  now  considered  to  be  worth 

10%  less  than  its  purchase  price.  The  reduction 
in  value  may  be  brought  about  by  the  following 
Journal  entry: 


$5,000.00 


December  31,  19 —  Instead   of   charging   Loss   & 

Loss  &  Gain     $500 .  00  Gain  a/c,  most  bookkeepers  would 

Machinery  $500 .  00      debit  some  account  hke  Manuf ac- 

Year's  depreciation  of  our  turing  a/c,  which  would  eventually 

machinery  be  dosed  into  the  Loss  &  Gam  a/c. 

Instead  of  crediting  Machinery  a/c,  it  is  deemed  better  practice  to  credit 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    329 


£ 

1 

h 
O 
H 

s 

< 

> 

1 

6 

j 

I 

I 

1 

1 

I 

1 

o 

Si 

M 

1 

i 

1 

V 

d 

a 
< 

s 

4 

4 

Dr. 

Trans- 
ferred 

Amount 

Paid 
Thereon 

s 

i 

6 

M 

S  s 

1^ 

1^ 

Date  of 

Transfer 

of  Shares 

by  the 

Above 

Named 

Date 
Became 
Owner 

330  BOOKKEEPING  AND  ACCOUNTING 

some  valuation  or  evaluation  account  like  Machinery  Depreciation  a/c. 
The  present  value  of  the  machinery  would  then  be  shown  by  two 
accounts,  as  follows: 

Machinery  Machinery  Depreciation 


$5,000.00 


$500.00 


The  second  account  is  regarded  as  a  valuation  account,  because  it 
helps  to  evaluate  the  account  to  which  it  relates.  Thus,  the  book 
value  of  the  machinery  is  regarded  as  $5,000.00  less  $500.00,  or  as 
$4,500.00.  Many  accountants  call  this  valuation  account  "  Machinery 
Depreciation  Reserve  a/c.'^  Though  most  practitioners  probably  favor 
the  second  name,  the  author  prefers  Machinery  Depreciation  a/c. 
The  student  may  employ  either  term.  A  discussion  of  the  relative 
merits  of  the  two  terms  is  out  of  place  in  the  present  text. 

Corresponding  to  other  tangible  property  accounts,  there  may  be 
employed  similar  valuation  accounts.  For  example,  Furniture  a/c 
may  have  its  Furniture  Depreciation  a/c.  Real  Estate,  its  Real  Estate 
Depreciation  a/c,  and  so  on.  In  practice,  however,  it  is  not  usual  to 
employ  many  separate  valuation  accounts.  In  many  cases,  depre- 
ciation is  credited  to  the  account  depreciated  instead  of  to  a  separate 
account.  For  example,  if  furniture  was  bought  for  $850.00  and  was 
deemed  to  have  depreciated  10%,  the  net  value  would  be  shown,  in 
most  instances,  as  follows: 

Furniture 


$850.00 


$85.00 


Bad  Debts 

Business  men  expect  to  lose  some  money  through  bad  debts.  As 
such  a  loss  is  incurred,  it  is  charged  to  Bad  Debts  a/c.  Thus,  if 
H.  L.  Janes,  who  owed  us  $300.00,  failed  and  paid  us  $180.00  in  full 
settlement  of  our  claim  against  him,  the  entry  therefor  would  be  as 
follows: 

Cash  $180.00 

Bad  Debts  120.00 

H,  L.  Janes  $300.00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    331 

At  the  end  of  the  year,  most  business  men  know  that  some  of  their 
Accounts  Receivable  will  prove  uncollectible.  Bad  Debts  a/c  had 
been  charged  during  the  year  for  all  definite  losses  resulting  from  the 
failure  of  customers  to  pay  all  that  they  owed.  But,  undoubtedly, 
not  all  bad  accounts  are  known.  Moreover,  even  if  doubt  exists  regard- 
ing the  full  collection  of  definite  accounts,  it  may  not  be  known  exactly 
how  much  loss  will  be  suffered.  In  order  to  charge  to  Profit  and  Loss  all 
bad  debts  which  have  actually  been  ascertained,  the  Bad  Debts  a/c 
is  transferred  to  the  Loss  and  Gain  a/c.  In  order  to  include  in  the  year's 
losses  all  other  bad  debts  which  probably  exist,  but  which  have  not  been 
finally  and  definitely  ascertained,  it  is  customary  to  "  guess  "  at  the 
probable  amount  involved.  The  past  experience  of  the  business  is 
frequently  a  good  index  to  this  amount. 

Say  that  the  Bad  Debts  a/c  shows  that  $810.00  had  been  charged 
to  it  during  the  course  of  the  year.  The  account  might  appear  as 
follows: 


Bad  Debts 

May    3    T.  A.  Brown 

275.00 

July     6    L.  Jones  &  Co. 

100.00 

19    D.A.Cole 

42.50 

Oct.     3    H.  L.  Janes 

120.00 

Dec.  12    Arthur  Lane 

272.50 

Let  us  now  assimae  that  we  believe  that  another  $500.00  will  be  lost, 
due  to  failure  to  collect  all  of  the  existing  Accounts  Receivable.  If 
we  had  prophetic  vision,  we  could  tell  exactly  which  accounts  were  bad 
and  for  how  much,  and  give  effect  to  this  knowledge  by  entries  of  the 
following  form: 

Bad  Debts  $ 

Customer  $ 


As  we  do  not  know  which  customers'  accounts  will  prove  uncollect- 
ible, we  cannot  credit  specific  customers'  accounts.  But  we  do  wish 
to  charge  Bad  Debts  a/c: 

Bad  Debts  $500.00 

Unknown  Accounts  Receivable  (?)  $500 .  00 

Various  accounts  could  be  suggested  to  which  to  carry  the  credit. 
Accountants,  however,  employ  an  account  for  this  purpose,  and,  though 


332  BOOKKEEPING  AND  ACCOUNTING 

a  better  term  than  the  one  in  general  use  could  be  offered,  it  is  necessary 
for  us  to  follow  the  usual  custom.     The  entry  is: 

Bad  Debts  $500.00 

Reserve  for  Bad  Debts  $500 .  00 

The  Bad  Debts  account  now  becomes: 

Bad  Debts 


May    3    T.  A.  Brown 

275.00 

July     6    L.  Jones  &  Co. 

100.00 

19    D.  A.  Cole 

42.50 

Oct.     3    H.  L.  Janes 

120.00 

Dec.  12    Arthur  Lane 

272.50 

31    Reserve 

500.00 

The  amount  carried  to  the  Loss  and  Gain  account  is,  therefore, 
$1,310.00  instead  of  $810.00.  Accounts  Receivable  account,  when 
shown  on  the  Balance  Sheet,  is  carried  at  its  evaluated  amount,  thus: 

Cash  $5,300.00 

Accounts  Receivable  $25,000.00 

Less  Reserve  for  Bad  Debts  500 .  00  24,500 .  00 

The  reason  for  including  Reserve  for  Bad  Debts  a/c  among  valua- 
tion accounts  should  now  be  clear.  Though  the  book  value  of  Accounts 
Receivable  is  $25,000.00,  the  real  value  to  the  business  is  judged  by  the 
goodness  or  collectibleness  of  the  items  included.  By  deducting  from 
the  book  value  the  approximate  amount  of  bad  items,  we  obtain  the 
approximate  real  value.  The  Machinery  a/c,  as  we  learned  before,  is 
treated  similarly.  If  it  cost  $5,000.00,  and  depreciated  $500.00  (see 
page  330),  it  would  appear  on  the  Balance  Sheet  as  follows: 

Machinery  $5,000.00 

Less  Depreciation        500.00  $4,500.00 

or  sometimes  as: 

Machinery  $4,500.00 

Bad  Debts  vs.  Reserve  for  Bad  Debts 

To  make  sure  that  the  reader  thoroughly  understands  the  differ- 
ence between  bad  debts  and  reserve  for  bad  debts,  a  comparison  and 
an  illustration  are  in  order.    The  Bad  Debts  a/c  is  transferred  at  the 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    333 

end  of  the  year  to  the  Profit  and  Loss  a/c.  It  represents  the  amount 
actually  lost  on  bad  debts,  plus  the  approximate  amount  which  it  is 
expected  still  to  lose  on  past  sales.  The  Reserve  for  Bad  Debts  a/c  is 
a  true  valuation  account;  it  shows  the  approximately  decreased  worth 
or  value  of  the  Accounts  Receivable  a/c,  and  it  should  always  be  de- 
ducted from  the  latter  account  when  shown  on  a  Balance  Sheet. 

An  illustration  wiU  make  the  difference  between  the  two  accounts 
still  clearer.  Should  Frank  D.  Blainn,  who  owes  us  $175.00,  become 
bankrupt,  and  pay  us  only  $110.00,  the  business  obviously  enough  has 
suffered  a  loss  of  $65.00.  The  first  impulse  is  to  record  the  transaction 
as  follows: 

Cash  $110.00 

Bad  Debts  65.00 

Frank  D.  Blainn  (Accounts  Receivable)       $175.00 

The  entry  is  correct  only  if  the  loss  was  suffered  as  the  result  of  a  sale 
to  Blainn  during  the  present  year.  If,  however,  Blainn's  indebtedness 
to  us  was  included  in  last  year's  Accounts  Receivable,  then  the  loss  of 
$65.00  was  charged  to  last  year's  Profit  and  Loss  a/c,  when  the  Reserve 
for  Bad  Debts  a/c  was  set  up.  Had  we  known  at  that  time  that 
Blainn's  a/c  was  to  prove  bad,  instead  of  crediting  Reserve  for  Bad 
Debts  a/c,  we  would  have  credited  his  account  (Accounts  Receivable) 
instead.  Now  that  we  do  know  which  account  is  bad,  the  entry 
should  be: 

Cash  $110.00 

Reserve  for  Bad  Debts  65 .  00 

Frank  D.  Blainn  (Accounts  Receivable)       $175.00 

Further  discussion  of  this  interesting  topic  must  be  reserved  for  more 
advanced  study. 

Reserves. — We  have  already  learned  that  the  net  profit  of  a  cor- 
poration is  frequently  called  its  surplus.  Dividends,  as  we  also  learned, 
are  declared  out  of  surplus.  Indeed,  stockholders  have  come  to  regard 
the  surplus  of  a  corporation  as,  in  a  measure,  belonging  to  them.  That 
this  is  not  quite  true  is  evident  from  the  fact  that  stockholders  do  not 
share  in  the  surplus  until  the  directors  of  the  corporation  apportion 
it  by  declaring  dividends.  Now,  it  is  not  advisable  to  distribute  all  of 
the  profits  earned;  some  should  be  retained  or  saved  "for  a  rainy 
day." 

In  partnerships,  the  divison  of  profits  shown  by  appropriate  Journal 
entries,  so  that  the  Loss  and  Gain  account  is  closed  and  the  partners 
credited  for  their  respective  shares.    This  division  does  not  result  in 


334 


BOOKKEEPING  AND  ACCOUNTING 


paying  out  money,  because  partners  do  not,  as  a  general  rule,  draw  out 
their  profits  as  soon  as  ascertained  and  apportioned.  In  a  corporation, 
on  the  other  hand,  as  soon  as  the  profits  (or  surplus)  are  apportioned, 
it  is  more  likely  to  be  paid  out.  Accordingly,  directors  refrain  from 
apportioning  among  the  stockholders  more  of  the  surplus  than  they 
are  ready  to  disburse  in  cash.  To  reduce  the  surplus  available  for 
dividends,  some  part  of  it  is  reserved.  This  is  accomplished  by  means 
of  a  Journal  entry  of  the  following  type: 

Surplus  $ 

Reserve  $ 


It  should  now  be  apparent  that  reserves  and  surplus  and  net  profits 
are  quite  synonymous  terms.  Net  profits  refer  to  the  credit  balance 
of  the  Profit  and  Loss  a/c;  surplus  to  the  same  balance  transferred  from 
the  P.  &  L.  a/c  to  the  Surplus  a/c;  reserves  to  that  portion  of  the  Sur- 
plus a/c  which  is  transferred  to  the  Reserve  a/c.  Other  distinctions 
and  differences  are  discussed  in  accounting  texts. 

Reserve  Fimds. — ^Bookkeepers  and  business  men  often  fail  to  dis- 
tinguish between  reserve  funds  and  reserves.  We  have  already  learned 
that  reserves  deal  with  profits  not  apportioned  and  distributed,  and 
shown  in  a  Reserve  account.  Reserve  funds  are  entirely  different  as  we 
shall  see  at  once. 

If  a  concern  commences  business  by  investing  $50,000.00  in  cash, 
the  following  Balance  Sheet  would  reflect  its  condition: 


Cash 


S50,000.00 


Capital 


§50,000.00 


If,  now,  the  managers  of  the  business  decided  to  set  aside  $10,000.00 
of  this  cash  in  a  special  fund  to  be  used  for  emergencies  or  for  a  desig- 
nated purpose,  a  simple  entry  would  accomplish  the  purpose: 


Reserve  Fund  Cash 
Cash 


$10,000.00 


$10,000.00 
The  following  Balance  Sheet  indicates  the  existing  condition: 


Cash 

Reserve  Fund  Cash 


$40,000.00 
10,000.00 

$50,000.00 


Capital 


$50,000.00 


$50,000.00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    336 

We  are  now  prepared  to  understand  that  a  reserve  fund  is  an  asset, 
whereas  a  reserve  is  a  profit.  A  reserve  can  only  exist  so  long  as  profits 
exist  which  have  not  been  distributed.  A  reserve  fund  shown  by  an 
appropriate  Reserve  Fund  account  can  be  established  at  any  time, 
irrespective  of  profits,  provided  that  sufficient  assets  exist. 

One  reason  for  the  failure  to  differentiate  clearly  between  reserve 
and  reserve  funds  is  indicated  in  the  following  condensed  Balance  Sheet : 


Cash 

Reserv^e  Fund  Cash 

Other  Assets 


$29,500.00 
10,000.00 
90,000.00 


$129,500.00 


Notes  and  Accounts  Payable 

Capital 

Reserve 

Surplus 


$55,500.00 

60,000.00 

10,000.00 

4,000.00 

$129,500.00 


This  Balance  Sheet  shows  that  undistributed  profits  amounting 
to  $14,000.00  exist  (Reserve  $10,000.00  plus  Surplus  $4,000.00).  The 
Reserve  a/c  was  created  by  charging  Surplus  a/c  and  crediting  Reserve 
a/c.  It  just  happens  that  there  was  also  set  aside  in  a  fund  an  amount 
of  cash  exactly  corresponding  to  the  amount  of  the  reserve.  This 
correspondence  may  or  may  not  have  been  an  unintentional  coincidence. 
It  probably  was  intentional  because  many  business  men  beUeve  it 
advisable,  though  not  necessary,  to  keep  intact  a  fund  exactly  equal  to 
the  undivided  profits  shown  in  the  Reserve  a/c.  It  is  probably  because 
of  the  frequent  coincidence  of  amounts  in  the  fund  and  in  the  reserve 
that  so  many  people  confuse  the  two  accounts.  The  reader  should 
not  be  guilty  of  a  similar  mistake,  despite  the  fact  that  much  which  is 
found  in  advanced  texts  had  to  be  omitted  from  the  present  book. 

Dividends. — ^As  we  have  previously  learned,  the  net  profit  of  a 
partnership  is  divided  between  the  members  of  the  firm,  equally  or 
in  other  agreed  upon  proportions.  This  division  of  profits  does 
not  usually  affect  the  assets  of  the  firm,  as  the  partners  ordinarily 
permit  their  profits  to  increase  their  net  capital  instead  of  drawing  out 
money  equivalent  to  the  profits.  But  in  corporations,  as  was  pointed 
out,  stockholders  frequently  wish  most,  if  not  all,  of  the  net  profits  of 
the  company  to  be  distributed  as  dividends.  Accordingly,  directors 
employ  the  device  of  "  reserving  "  some  of  the  net  profits  earned,  as 
we  just  learned,  so  as  to  reduce  the  amount  "  available  for  dividends." 

The  Surplus  account  shows  how  much  may  be  paid  out  as  dividends, 
but  stockholders  ordinarily  have  no  claim  on  these  profits  until  the  direc^ 


BOOKKEEPING  AND  ACCOUNTING 


tors  take  formal  steps  to  distribute  such  earnings.  Such  affirmative 
action  on  the  part  of  directors  is  known  as  **  declaring  a  dividend." 
If  the  surplus  of  The  Kent  Trading  Company,  Inc.,  was  $16,000.00 
and  the  capital  stock,  all  issued,  was  $100,000.00,  ia  dividend  of  16% 
could  be  declared.  This  means  16%  on  the  issued  stock  and  not  16% 
on  the  surplus. 

When  the  dividend  is  declared,  the  following  Journal  entry  should 
be  made: 

Date 


Surplus 


$16,000.00 


Dividends  Payable 


$16,000.00 


The  Directors  have  this  day  declared  a  dividend  of 
16%  on  the  total  capital  stock  of  the  Company  (Minute 
Book,  page  — ). 

This  entry  extinguishes  the  Surplus  account  and  sets  up  a  liability 
to  the  stockholders. 

If  it  is  desired  to  earmark  this  dividend  so  as  to  show  that  it  is,  say, 
the  fifteenth  in  the  history  of  the  company,  the  effect  would  be  thus 
obtained: 


Surplus  $16,000.00 

Dividends  Payable  No.  15 


$16,000.00 


The  liability  to  stockholders  is  removed  by  actually  paying  them  the 
dividends  to  which  they  are  entitled.  For  example,  Frank  Browne, 
the  holder  of  eight  shares  would  receive  8  X  $16.00,  $128.00,  or  16% 
of  $800.00,  $128.00,  as  his  share  of  the  dividend  declared.  The  entry 
for  this  payment  to  him  would  be  made  in  the  Cash  Book,  disburse- 
ment side,  as  follows: 


Date 

Dividends  Payable 

F.  Browne,  8  shares 

128 

00 

or, 

Date 

Dividends  Payable  No.  15 

F.  Browne,  8  shares 

128 

00 

These  Cash  Book  entries  correspond  to  the  Journal  entries  with 
which  we  have  been  illustrating  all  original  entries  regardless  of  what 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    337 

books  they  would  actually  appear  in,  in  practice.    The  Journal  entry 
for  the  first  Cash  Book  illustration  is  as  follows: 

Date 

Dividends  Payable  $128 .  00 

Cash  $128.00 

Paid  F.  Browne  dividends 
on  8  shares  of  stock. 

Questions 

1.  Differentiate  between  common  stock  and  preferred  stock. 

2.  What  is  meant  by  cumulative  preferred  stock? 

3.  How  may  the  owner  of  some  of  the  corporation's  stock  transfer  title 
to  it? 

4.  Define  and  illustrate  valuation  accounts. 

5.  How  may  the  amount  of  depreciation  on  a  machine  be  determined? 

6.  Distinguish  between  bad  debts  and  reserve  for  bad  debts. 

7.  What  is  the  difference  between  surplus  and  reserve? 

8.  How  are  reserve  funds  established? 

9.  Distinguish  between  dividends  and  profits. 

10.  Tell  how  to  ascertain  the  rate  of  dividends. 

Exercise  52A 

The  Machinery  account  on  the  books  of  a  corporation  shows  expenditures 
amounting  to  $27,500.00.  The  Machinery  Depreciation  account  is  credited 
for  a  total  of  $8,260.00.  Show  the  entry  giving  effect  to  a  resolution  of  the 
Board  of  Directors  that  10%  of  the  original  cost  of  the  machinery  be  written  off 
as  representing  the  year's  depreciation. 

Exercise  52B 

Show  the  entry  required  for  Exercise  52A,  above,  if  10%  was  to  be  taken, 
not  on  the  original  cost  of  the  machinery,  but  on  its  depreciated  value. 

Exercise  62C 

The  Furniture  and  Fixtures  account  of  a  certain  firm  has  a  debit  balance 
of  $765.00.  Upon  an  appraisal  at  the  end  of  the  year,  the  value  of  the  furni- 
ture and  fixtures  is  determined  to  be  $530.00.  Show  the  proper  adjustment 
entry  required  in  the  premises. 

Exercise  62D 

Franklin  L.  Simmons,  who  owes  us  $310.00,  is  declared  a  bankrupt.  He 
settles  by  paying  us  40c.  on  the  dollar.    Show  the  resulting  entry  or  entries. 


338  BOOKKEEPING  AND  ACCOUNTING 

Exercise  62£ 

At  the  end  of  a  certain  year,  the  Board  of  Directors  of  a  company  decide 
to  write  off  3%  from  Accounts  Receivable,  shown  on  the  books  to  amount  to 
$137,263.14,  as  a  reserve  for  bad  debts.    Show  the  proper  entry  therefor. 

Exercise  52F 

Assume  that  on  February  3  of  the  following  year,  Franklin  Bros.,  who 
have  owed  the  company  referred  to  in  Exercise  52E,  above,  $640.00  since  Sep- 
tember 18  of  the  previous  year,  fail  and  settle  with  the  company  by  returning 
to  them  merchandise  invoiced  at  $150.00  and  cash  $320.00.  Show  the  entry 
on  the  books  of  the  company. 

Exercise  52G 

Show  the  entry  on  the  books  of  the  company  for  the  situation  discussed  in 
Exercise  52F,  above,  if  the  company's  account  with  Frankhn  Bros,  originated 
after  the  closing  of  the  company's  books  for  the  preceding  year. 

Exercise  52H 

Show  the  entry  on  the  books  of  Franklin  Bros,  for  the  payment  referred  to 
in  Exercise  52F,  above. 

Exercise  521 

The  net  profit  of  a  corporation  for  a  certain  year,  as  shown  in  its  Profit 
and  Loss  account,  amounts  to  $16,840.00.  The  Board  of  Directors  declares 
a  dividend  of  6%  on  the  outstanding  capital  stock,  which  amounts  to  $100,000.00. 
The  Board  of  Directors  also  decides  to  create  a  reserve  of  $5,000.00.  Show 
the  Journal  entry  or  entries  necessary  to  give  effect  to  the  action  of  the  Board. 

Exercise  52J 

A  corporation  with  a  large  balance  of  cash  on  hand  decides  to  create  a  reserve 
fund  by  depositing  $10,000.00  with  the  Union  Trust  Company.  Show  the 
required  entry. 


53.  Dissolution  of  Corporations 

There  remains  for  final  discussion  the  entries  necessary  to  close 
the  books  of  a  corporation  at  the  time  of  its  dissolution.  A  corpora- 
tion may  dissolve  voluntarily,  or  it  may  do  so  as  the  result  of  bank- 
ruptcy, or  finally,  as  the  result  of  a  court  order  for  cause.  We  shall 
give  our  attention  to  voluntary  dissolution  only,  and  shall  consider 
three  problems  in  the  present  connection. 

(a)  The  F.  T.  R.  Long  Company,  Inc.,  decides  to  dissolve  organiza- 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    839 


tion,  and  for  this  purpose  meets  all  the  legal  requirements  involved. 
At  this  time,  its  condition  is  reflected  by  the  following: 

Balance  Sheet  of  the  F.  T.  R.  Long  Company,  Inc.,  December  28,  19 — 


Assets: 
Cash 

Accounts  Receivable 
Notes  Receivable 
Mdse.  Inventory 
Furniture  and  Fixtures 


$3,300.00 

10,400.00 

5,000.00 

6,000.00 

500.00 


$25,200.00 


Liabilities: 
Accounts  Payable 
Notes  Payable 

Total  Liabilities 

Capital: 
Capital  Stock 
Surplus 


$8,000.00 
3,000.00 

$11,000.00 


10,000.00 
4,200.00 

$25,200.00 


To  dissolve  business  impHes  the  liquidating  or  paying  off  of  all  Ua- 
bihties  and  the  reahzing  on,  or  converting  of  all  the  assets  into  cash. 
Frequently  this  process  of  realization  and  liquidation  is  intrusted  to  a 
committee,  but  for  our  purposes  we  may  dispense  with  the  discussion 
of  the  procedure  incident  to  the  winding  up  of  affairs  and  devote  our 
attention  to  the  bookkeeping  involved. 

As  assets  are  sold,  entries  of  the  following  type  are  in  order: 

Cash  $ 

Furniture  and  Fixtures  $ 

When  Accounts  Receivable  are  collected,  the  ordinary  entry  is 
made: 

Cash  $ 

Thomas  Jones  $ 

or, 

Cash  $ 

Discount  on  Sales  

Thomas  Jones  $ 

Enough  has  been  pointed  out  to  show  that  the  entries  incident  to 
reahzation  and  hquidation  are  not  necessarily  different  from  those 
which  occur  during  the  ordinary  routine  of  business  hfe,  though  a 
wrong  impression  would  be  left  did  we  fail  to  remark  that  in  advanced 
works  certain  technical  accounting  modifications  are  introduced  to  record 
the  process  of  winding  up  a  concern. 

Assume  that  all  the  debts  have  been  paid,  and  all  the  assets  converted 
into  cash,  and  that  the  incidental  expenses  and  losses  charged  to  Profit 


340 


BOOKKEEPING  AND  ACCOUNTING 


and  Loss  account  had  been  transferred  to  Surplus  account,  so  that  the 
condition  of  the  company  was  now  as  follows: 


Balance  Sheet  of  F.  T.  R.  Long  Company,  Inc.,  January  24,  19 — 

Assets: 
Gash                               $12,800.00 

Capital: 
Capital  Stock                   $10,000.00 
Surplus                                2,800.00 

$12,800.00 

$12,800.00 

An  inspection  of  the  foregoing  exhibit  shows  that  the  realization 
and  hquidation  losses  amounted  to  $1,400.00,  clearly  indicated  by  the 
reduction  of  the  surplus  from  $4,200.00  on  December  28,  to  $2,800.00 
on  January  24.  We  should  also  note  that  the  holder  of  each  one- 
hundred-dollar  share  of  stock  is  entitled  to  $128.00,  that  is,  to  a  return 
of  his  capital  ($100.00)  and  to  one-hundredth  (r^Ty)  of  the  surplus 
(tU  of  $2,800.00,  $28.00).  The  surplus  is  usually  distributed  as 
dividends,  but  it  is  possible  for  the  directors  to  vote  to  pay  out  the 
capital  and  the  surplus  simultaneously.  The  entry  when  Mr.  Long 
was  paid  is  as  follows: 

Disbursement  side  of  the  Cash  Book: 


Date 


Capital  Stock 
Surplus 


Redemption  of  F.  T.  R.  Long's 
holding:  30  shares  @  $128.00 


3000 
840 


This  entry  corresponds  to  the  following  one  in  the  Journal. 

Date 
Capital  Stock  $3,000 .  00 

Surplus 


840.00 


Cash 


Redemption  and  cancellation  of 
F.  T.  R.  Long's  holdings: 
30  shares  of  capital  stock  at  par 
30/100  of  the  Surplus  of  $2,800.00 


$3,840.00 


$3,000.00 
840.00 

$3,840.00 


After  all  of  the  stockholders  have  been  paid,  all  of  the  accounts, 
and  hence  the  books,  have  been  closed. 

(6)  If  on  January  24,  it  was  found  that  the  capital  had  been  impaired, 
due  to  the  fact  that  the  expenses  of  and  losses  incident  to  winding  up 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    341 

exceeded  the  surplus  of  $4,200.00,  which  existed  on  the  preceding 
December  28,  another  problem  is  before  us  for  solution.  Let  this  be 
the  balance  sheet  now: 


Assets: 
Cash 
Deficit 


9,400.00 
600.00 

$10,000.00 


Capital: 
Capital  Stock 


$10,000.00 


$10,000.00 


This  deficit  of  $600.00  shows  that  since  December  28,  $4,800.00 
was  charged  to  the  Surplus  account,  changing  a  credit  balance  into  a 
debit  balance.  We  must  decide  how  to  divide  the  $9,400.00  on  hand 
among  shareholders  who  own  a  total  of  100  shares  of  stock.  The  solu- 
tion is  as  simple  as  when  a  surplus  existed.  Each  share  of  stock  is 
entitled  to  ^hf  oi  the  net  capital,  or  to  t^j  of  $9,400.00,  $94.00.  Mr. 
Long  should  thus  receive  30  times  $94.00,  or  $2,820.00  for  his  holdings 
of  thirty  shares.  The  Cash  Book  entries  for  settlement  with  him 
correspond  to  the  following  Journal  entry: 

Date 

Capital  Stock  $3,000 .  00 

Cash  $2,820.00 

Surplus  (or  Deficit  a/c)  180 .  00 

Redemption  and  cancellation 
of  F.  T.  R.  Long's  holdings: 
30  shares  at  $94.00 

The  student  should  observe  that  the  foregoing  entry  reduced  the 
Capital  Stock  account  for  the  par  value  of  thirty  shares  and  the  deficit 
by  $180.00,  Mr.  Long's  loss  on  his  holdings. 

In  practice,  the  entry  for  the  $2,820.00  would  appear  in  the  Cash 
Book,  of  course.     Let  us  see  what  is  required: 

Disbursement  side  of  the  Cash  Book: 


Date         Capital  Stock     Mr.  Long's  30  shares  @  $94.00     2,820  00 


This  entry  credits  Cash  for  $2,820.00,  which  is  correct,  but  charges 
the  Capital  Stock  account  for  only  $2,820.00  instead  of  $3,000.00. 
Some  other  entry  is  necessary  in  order  to  charge  Capital  Stock  account 


342 


BOOKKEEPING  AND  ACCOUNTING 


for  $180.00,  and  to  credit   Surplus  (or  Deficit)    account  for  the  same 
amount.     The  Journal  is  the  medium  available: 

Date 

Capital  Stock  $180.00 

Surplus  (or  Deficit)  $180.00 

Loss  suffered  by  F.  T.  R.  Long 
on  30  shares  of  stock  redeemed  by 
the  Company  at  $94.00. 

(c)  As  a  final  problem  involving  the  dissolution  of  a  corporation, 
let  us  consider  the  affairs  of  a  company  whose  condition  is  shown  by 
the  following: 

Balance  Sheet  of  The  Imperial  Trading  Company,  Inc., 
as  at  January  15,  19 — 


Assets: 

Liabilities: 

Cash 

$1,200.00 

Accounts  Payable 

$16,500.00 

Accounts  Receivable 

26,800.00 

Notes  Payable 

10,000.00 

Mdse.  Inventory 
Fixtures 

18,300.00 
2,200.00 

Total  Liabilities 

Capital  and  Surplus: 

Capital  Stock 
authorized      $25,000.00 

Less  unsub- 
scribed              5,000.00 

$26,500.00 

Issued  Stock 

20,000.00 

Surplus 

2,000.00 

$48,500.00 

$48,500.00 

Assume  that  arrangements  were  completed  to  transfer  the  business 
of  the  Imperial  Trading  Company,  Inc.,  to  The  United  Trading  Com- 
pany, Inc.,  upon  the  payment  by  the  latter  company  of  some  of  its 
preferred  capital  stock  to  the  former  company.  In  order  to  make  this 
discussion  of  maximum  value  to  the  student,  we  shall  consider  three 
cases,  and  show  the  effect  of  each  upon  the  books  of  both  concerns: 

I.  The  vendees  (buyers)  pay  to  the  vendors  (sellers)  $22,000.00  of 
preferred  stock. 

II.  The  vendees  pay  $25,000.00  of  preferred  stock. 
III.  The  vendees  pay  only  $15,000.00  of  preferred  stock. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    343 

The  condensed  Balance  Sheet  of  the  vendees  is  as  follows: 
Balance  Sheet  of  The  United  Trading  Company,  Inc.,  January  15,  19 — 


Assets: 

Liabilities: 

Cash 

$50,000.00 

Accounts  and  Notes 

Other  Assets 

800,000.00 

Payable                          $260,000.00 

Capital  and  Surplus: 

Common  Stock                    600,000 .  00 

Preferred  Stock 

authorized     $200,000.00 

Less  unsub- 
scribed           140,000.00  60,000.00 

Surplus                                  30,000.00 

$850,000.00 

$850,000.00 

Observe  that  all  of  the  common  stock  has  been  issued,  but  only 
$60,000.00  of  the  entire  amount  of  authorized  preferred  stock.  The 
United  Trading  Company,  Inc.,  has  agreed  to  issue  some  of  its  unsub- 
scribed preferred  capital  stock  for  the  business  of  the  Imperial  Trading 
Company,  Inc. 

Case  I. — The  Imperial  Trading  Company,  Inc.,  sells  its  business 
to  The  United  Trading  Company,  Inc.,  for  $22,000.00  of  the  latter's 
preferred  stock.  The  entries  on  the  books,  both  of  (the  vendor  and  of 
the  vendee,  are  shown  on  pages  344  and  345. 

The  books  of  the  Imperial  Trading  Co.,  Inc.,  are  now  closed.  In  prac- 
tice, separate  entries  would  be  made  for  the  exchange  of  stock  by  each 
stockholder,  but  the  form  of  the  summary  entry  shown  is  applicable  to 
individual  transactions.  The  surrendered  stock  is  now  the  property 
of  The  United  Trading  Co.,  Inc.,  whose  ownership  of  the  business  of 
the  Imperial  Company  is  evidenced  by  such  stock  or  its  equivalent. 
The  United  Trading  Company  could  make  the  following  simple  entries 
for  the  transaction; 

Date 

Subscriptions  to  Preferred  Stock  $22,000.00 

Unsubscribed  Preferred  Stock  $22,000 .  00 

Date 
Imperial  Trading  Co.  Stock  $22,000.00 

Subscriptions  to  Preferred  Stock  $22,000.00 


344 


BOOKKEEPING  AND  ACCOUNTING 


(1)  Entries  for  the  Imperial  Trading  Company,  Inc. 


Date 
The  United  Trading  Co.,  Inc. 
Cash 

Accounts  Receivable 
Mdse.  Inventory- 
Fixtures 

To  transfer  all  our  assets  to  The  United 
Trading  Co.,  Inc.,  as  per  agreement,  Minute 

Book,  pp. . 

Date 
Accounts  Payable 
Notes  Payable 

The  United  Trading  Co.,  Inc. 

Assumption  by  The  United  Trading  Co., 
Inc.  of  our  existing  Uabilities,  as  per  agree- 
ment, Minute  Book,  pp. . 

Date 
United  Trading  Co.  Preferred  Stock 
The  United  Trading  Co.,  Inc. 

Reed.  220  shares  of  The  United  Trading 
Company's  stock  in  full  payment  of  our  rights 
and  interest  in  the  Imperial  Trading  Com- 
pany, as  per  agreement.  Minute  Book,  pp. . 

Date 
Capital  Stock 
Surplus 
United  Trading  Co.  Preferred  Stock 

Cancellation  of  the  capital  stock  of  this 
Company  by  distributing  l^u  shares  of  the 
preferred  stock  of  The  United  Trading  Co.  for 
each  share  of  our  capital  stock  surrendered. 


48,500 


00 


16,500 
10,000 


22,000 


20,000 
2,000 


00 


1,200 
26,800 
18,300 

2,200 


00 
00 
00 
00 


26,50000 


22,000 


22,000 


00 


00 


We  have  assumed,  however,  that  the  Imperial  Trading  Company, 
Inc.,  has  been  really  dissolved,  and  so,  instead  of  a  change  of  ownership, 
in  virtue  of  the  fact  that  the  stock  was  owned  by  other  holders,  we  must 
give  effect  to  a  physical  transfer  of  the  assets  and  liabilities. 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    345 


(2)  Entries  for  The  United  Trading  Company,  Inc.: 


Date 
Subscriptions  to  Preferred  Stock 
Unsubscribed  Preferred  Stock 

Subscribers  at  par: 

(Names  of  stockholders  of  the  Imperial 
Trading  Co.,  Inc.,  showing  how  many  shares 
each  had  subscribed  for  in  the  ratio  of  1-nr  new 
shares  for  each  old  share  to  be  transferred.) 

Date 
Cash 

Accounts  Receivable 
Mdse.  Inventory 
Fixtures 

Accounts  Payable 

Notes  Payable 

Subscriptions  to  Preferred  Stock 

Accepted  the  business  of  the  Imperial  Trad- 
ing Co.,  Inc.,  in  full  payment  for  subscriptions 
to  220  shares  of  preferred  stock,  as  per  agree- 
ment, Minute  Book,  pp.  — . 


22,000 


1,200 
26,800 
18,300 

2,200 


00 


22,000 


00 


16,500 
10,000 
22,000 


The  entries  on  the  books  of  The  United  Trading  Co.,  Inc.,  are  now 
complete.  After  posting  them,  the  condensed  Balance  Sheet  previously 
shown  becomes: 


Cash 

$51,200.00 

Accounts  and  Notes  Payable             $286,500.00 

Other  Assets 

847,300.00 

Capital  and  Surplus: 
Common  Stock                                 600,000 .  00 
Preferred  Stock 

authorized              $200,000.00 
Less  unsubscribed       1 18,000 .00       82,000 .  00 

Surplus                                               30,000.00 

$898,500.00 

$898,500.00 

Case  II. — In  this  problem  we  are  to  show  what  entries  result  in  the 
books  of  both  concerns,  under  the  assmnption  of  the  same  conditions 
as  in  the  first  case,  but  with  the  purchase  price  paid  by  The  United 
Trading  Co.,  Inc.,  $25,000.00,  instead  of  $22,000.00. 


346 


BOOKKEEPING  AND  ACCOUNTING 


(1)  Entries  for  the  Imperial  Trading  Co.,  Inc.: 


Good  Will 
Surplus 

To  set  up  excess  valuation  placed  upon  this 
business  by  The  United  Trading  Co.,  Inc.,  as 
per  agreement,  Minute  Book,  pp. . 

The  United  Trading  Co.,  Inc. 
Cash 

Accounts  Receivable 
Mdse.  Inventory- 
Fixtures 
Good  Will 

Transfer  of  all  our  assets  to  The  United 
Trading  Co.,  Inc.,  as  per  agreement.  Minute 

Book,  pp. . 

Date 
Accounts  Payable 
Notes  Payable 

The  United  Trading  Co.,  Inc. 

Assumption  by  The  United  Trading  Co., 
Inc.,  of  our  existing  liabilities,  as  per  agree- 
ment. Minute  Book,  pp. . 

Date 
United  Trading  Co.  Preferred  Stock 
The  United  Trading  Co.,  Inc. 

Reed.  250  shares  of  The  United  Trading 
Company's  stock  in  full  payment  of  our  rights 
and  interest  in  the  Imperial  Trading  Com- 
pany, as  per  agreement,  Minute  Book,  pp. . 

Date 
Capital  Stock 
Surplus 

United  Trading  Company  Preferred  Stock 

Cancellation  of  the  capital  stock  of  this 
Company,  by  distributing  1|  shares  of  the 
preferred  stock  of  The  United  Trading  Com- 
pany for  each  share  of  our  capital  stock  sur- 
rendered. 


3,000 


00 


51,500 


16,500 
10,000 


25,000 


20,000 
5,000 


00 


00 


3,000 


1,200 

26,800 

18,300 

2,200 

3  000 


26,500 


25,000 


25,000 


00 


00 
00 
00 
00 
00 


00 


00 


00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    347 

(2)  Entries  for  The  United  Trading  Co.,  Inc.: 


Subscriptions  to  Preferred  Stock 
Unsubscribed  Preferred  Stock 

Subscriptions  at  par: 

(Names  of  stockholders  of  the  Imperial 
Trading  Co.,  Inc.,  showing  how  many  shares 
each  had  subscribed  for  in  the  ratio  of  1|  new 
shares  for  each  old  share  to  be  transferred.) 

Date 
Cash 

Accounts  Receivable 
Mdse.  Inventory- 
Fixtures 
Good  Will 

Accounts  Payable 

Notes  Payable 

Subscriptions  to  Preferred  Stock 

Accepted  the  business  of  the  Imperial  Trad- 
ing Co.,  Inc.,  in  full  payment  for  subscription 
to  250  shares  of  preferred  stock,  as  per  agree- 
ment. Minute  Book  pp. . 


25,000 


00 


1,200 

26,800 

18,300 

2,200 

3,000 


25,000 


00 


16,500 
10,000 
25,000 


The  condensed  Balance  Sheet  of  The  United  Trading  Company, 
Inc.,  is  now  as  follows: 


Cash 

$51,200.00 

Accounts  and  notes  Payable     $286,500 .  00 

Other  Assets 

850,300.00 

Capital  and  Surplus: 

Common  Stock                        500,000.00 
Preferred  Capital  Stock 

Authorized      $200,000.00 
Less  unsub- 
scribed             115,000.00     85,000.00 

Surplus                                      30,000.00 

$901,500.00 

$901,500.00 

Case  III. — As  a  final  problem  let  us  see  what  entries  result  on  the 
assumption    that    The    United  Trading  Company,    Inc.,    paid    only 


348 


BOOKKEEPING  AND  ACCOUNTING 


$15,000.00  in  preferred  stock  for  the  business  of  the  Imperial  Trading 
Co.,  Inc. 

(1)  Entries  for  the  Imperial  Trading  Co.,  Inc.: 


Date 

The  United  Trading  Co.,  Inc. 
Cash 

Accounts  Receivable 
Mdse.  Inventory 
Fixtures 

Transfer  all  our  assets  to  The  United  Trad- 
ing Co.,  Inc.,  as  per  agreement.  Minute  Book, 
pp. — . 

Date 
Accounts  Payable 
Notes  Payable 

The  United  Trading  Co.,  Inc. 

Assumption  by  The  United  Trading  Co., 
Inc.,  of  our  existing  HabiHties,  as  per  agree- 
ment, Minute  Book,  pp.  — . 

Date 

United  Trading  Co.  Preferred  Stock 
Surplus 

The  United  Trading  Co.,  Inc. 

Reed.  150  shares  of  The  United  Trading 
Company's  stock  in  full  payment  of  our 
rights  and  interest  in  the  Imperial  Trading 
Company,  as  per  agreement,  Minute  Book, 

pp. . 

Date 
Capital  Stock 

United  Trading  Co.  Preferred  Stock 
Surplus 

Cancellation  of  the  capital  stock  of  this 
Company,  by  distributing  f  of  a  share  of  the 
preferred  stock  of  The  United  Trading  Co.  for 
each  share  of  our  capital  stock  surrendered. 


48,500 


16,500 
10,000 


15,000 
7,000 


20,000 


00 


00 


1,200 
26,800 
18,300 

2.200 


26,500 


22,000 


15,000 
5,000 


00 
00 
00 
00 


00 


00 


00 
00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    349 

The  student  will  readily  see  that  the  loss  of  seven  thousand  dollars 
suffered  by  the  Imperial  Trading  Company,  in  consequence  of  the  sale 
of  the  business  for  $15,000.00,  when  its  book  value  was  $22,000.00, 
resulted  in  canceling  the  existing  Surplus  account  of  $2,000.00,  and 
creating  a  deficit  (debit  balance  in  the  Surplus  account)  of  $5,000.00. 
Because  of  this  capital  impairment,  the  value  of  the  Imperial  Company's 
stock  was  below  par  in  terms  of  The  United  Trading  Company's  pre- 
ferred stock.  Each  share  of  the  Imperial  Company's  stock  was  then 
worth  ^  of  $15,000.00  (United  Trading  Co.  Preferred  Stock)  or 
$75.00. 

(2)  Entries  for  The  United  Trading  Company,  Inc.: 


Subscriptions  to  Preferred  Stock 
Unsubscribed  Preferred  Stock 

Subscribers  at  par: 

(Names  of  stockholders  of  the  Imperial 
Trading  Co.,  Inc.,  showing  how  many  shares 
each  had  subscribed  for  in  the  ratio  of  three- 
quarters  of  a  share  for  each  old  share  to  be 
transferred.) 

Date 

Cash 

Accounts  Receivable 

Mdse.  Inventory 

Fixtures 

Accounts  Payable 

Notes  Payable 

Subscriptions  to  Preferred  Stock 

Surplus 

Accepted  the  business  of  the  Imperial  Trad- 
ing Co.,  Inc.,  in  full  payment  for  subscription 
to  150  shares  of  preferred  stock  as  per  agree- 
ment. Minute  Book,  pp. . 


15,000 


1,200 
26,800 
18,300 

2,200 


00 


15,000 


00 


16,500 

10,000 

15,000 

7,000 


Observe  that  a  profit  (surplus)  of  $7,000.00  was  earned  by  The 
United  Trading  Company,  because  it  received  the  business  of  the 
Imperial  Trading  Co.,  worth  $22,000.00,  for  only  $15,000.00. 


350 


BOOKKEEPING  AND  ACCOUNTING 


The  condensed  Balance  Sheet  of  the  United  Trading  Company,  Inc., 
is  now  as  follows: 


Cash 

$51,200.00 

Accounts  and  Notes  Payable 

$286,500.00 

Other  Assets 

847,300.00 

Capital  and  Surplus: 

Common  Stock 

500,000.00 

Preferred  Stock 

Authorized           $200,000.00 

Less  unsubscribed      125,000 .  00 

75,000.00 

Surplus 

37,000.00 

$898,500.00 

.a> —     •  —  --- 

$898,500.00 

Questions 

1.  What  is  meant  by  the  dissolution  of  a  corporation? 

2.  Why  is  a  corporation  dissolved? 

3.  How  may  a  corporation  be  dissolved  in  your  state? 

4.  What  is  meant  by  "  realization  and  Hquidation  losses  "? 

5.  Who  is  responsib    for  the  debts  of  a  corporation? 

6.  State  how  you  would  decide  to  how  much  money  each  share  of  stock 
was  entitled  at  dissolution. 

7.  What  entries  are  required  fo  record  the  dissolution  of  a  corporation? 

8.  What  happens  to  the  surplus  of  a  corporation  at  the  time  of  dissolution? 

9.  Differentiate  between  voluntary  and  involuntary  dissolution. 

10.  What  rights,  if  any,  have  preferred  stockholders  which  common  stock- 
holders have  not,  when  corporations  are  dissolved? 


Exercise  63A 

The  Silas  Marner  Company  decides  to  dissolve.    At  this  time,  its  Balance 
Sheet  is  as  follows: 

Balance  Sheet  of  The  Silas  Marner  Company  as  of  October  1,  19 — 


Cash 

Notes  Receivable 
Accounts  Receivable 
Mdse.  Inventory 
Furniture  and  Fixtures 


$4,280.00 

1,000.00 

5,300.00 

1,425.00 

300.00 

$12,305.00 


Liabilities: 
Accounts  Payable 

Capital: 
Capital  Stock 
Surplus 


$1,208.00 

10,000.00 
1,097.00 

$12,305.00 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    351 

The  capital  stock  consists  of  100  shares  of  common  stock,  having  a  par 
value  of  $100.00  each.  Assuming  that  all  the  assets  were  converted  into  cash, 
without  any  loss  whatsoever,  and  that  the  liabilities  were  paid  in  full,  and  that 
no  further  expenses  were  incurred,  show: 

(1)  The  amount  due  to  each  stockholder  per  share  of  stock. 

(2)  The  closing  entries. 

Exercise  53B 

If  the  expenses  and  losses  incidental  to  the  dissolution  of  the  corporation 
discussed  in  Exercise  53^,  above,  amounted  to  $480.00,  show: 

(1)  The  amount  due  to  each  stockholder  per  share  of  stock. 

(2)  The  closing  entries. 

Exercise  53C 

If  the  expenses  and  losses  incidental  to  the  dissolution  of  the  corporation 
discussed  in  Exercise  53A,  above,  amounted  to  $1,297.00,  show: 

(1)  The  amount  due  to  each  stockholder  per  share  of  stock. 

(2)  The  closing  entries. 

64.  SUMMARY 

The  Principles  of  Bookkeeping  Universal. — This  chapter  has  served 
to  illustrate  that  just  as  partnership  bookkeeping  did  not  differ  radically 
from  the  bookkeeping  of  sole  proprietorships,  so  also  the  same  principles 
which  obtained  in  the  bookkeeping  of  individual  proprietors  and  part- 
nerships were  found  applicable  to  the  problems  which  confronted  the 
bookkeeper  for  corporations.  The  new  items  which  were  introduced 
concerned  themselves  at  least  as  much  with  the  legal,  financial  and  busi- 
ness relationships  which  were  involved  in  corporate  enterprises,  as  with 
the  bookkeeping  thereof.  The  bookkeeping  differences  were  illustrated 
by  means  of  sections  dealing  with  the  opening  entry  for  corporations, 
routine  entries  and  dissolutions. 

Certificate  of  Incorporation. — It  was  learned  that  a  corporation  is 
born  only  as  a  result  of  legal  sanction.  The  principal  step  in  seeming 
the  state's  permission  to  conduct  business  as  a  corporation  is  amply 
illustrated  in  the  certificate  of  incorporation  or  charter  of  the  company. 
Though  the  bookkeeper,  as  such,  is  not  expected  to  be  able  to  organize 
corporations,  it  is  nevertheless  desirable,  both  for  cultural  and  utilitarian 
reasons,  that  he  familiarize  himself  with  the  Articles  of  Incorporation 
of  any  enterprise  with  which  he  is  connected,  because,  just  as  do  the 
Articles  of  Copartnership  in  a  partnership,  the  Certificate  of  Incorpora- 


352  BOOKKEEPING  AND  ACCOUNTING 

tion  throws  light  upon  the  duties,  obhgations  and  rights  of  the  owners 
and  directors  of  a  corporate  enterprise. 

The  certificate  shown  on  pages  281-284,  is  sufficiently  broad  to  give 
some  definite  idea  of  the  features  of  such  legal  papers.  The  steps  in  the 
formation  of  a  corporation,  outlined  on  pages  280-281,  though  based 
upon  the  procedure  in  New  York  State,  are  sufficiently  general  to  help 
one  to  understand  the  specific  details  involved  in  organizing  a  business 
corporation  in  any  state  of  the  Union. 

Opening:  Entries. — The  opening  entries  were  somewhat  different 
from  those  to  which  the  student  had  previously  become  accustomed, 
due  to  the  requirements  of  the  law  as  well  as  to  the  technical  forms 
which  had  come  into  use.  These  opening  entries  taught  the  stu- 
dent how  to  record  transactions  involved  in  estabhshing  a  corporation, 
both  as  an  original  enterprise  and  as  a  result  of  conversion  from  some 
other  form  of  organization.  In  dealing  with  corporations  which  resulted 
wholly  or  in  part  from  previous  establishments,  three  distinct  situations 
were  discussed,  namely,  corporate  organizations  with  capitals  equal  to, 
more,  and  less  than  the  capitals  of  the  original  organizations  so  con- 
verted. Such  new  terms  as  Subscriptions,  Unsubscribed  Stock,  Capital 
Stock  and  Authorized  Capital  were  introduced  and  suitably  explained. 

Miscellaneous  Topics. — Under  the  heading  of  miscellaneous  cor- 
poration topics,  considerable  new  matter  was  presented.  Conunon 
capital  stock  was  differentiated  from  preferred  capital  stock;  cumula- 
tive preferred  stock  was  introduced  and  discussed;  the  importance  of 
valuation  accounts  and  the  methods  of  determining  depreciation  and 
bad  debts  were  discussed;  reserves,  and  reserve  funds  were  explained 
and  contrasted  with  each  other,  and  finally,  the  subject  of  dividends 
was  presented. 

Dissolution. — ^The  manner  of  dissolving  a  corporation  was  treated 
in  the  last  division  of  the  present  chapter.  This  section  was  made  the 
means  of  illustrating  the  reasons  for  dissolving  a  corporation,  as  well  as 
the  bookkeeping  entries  necessitated  by  such  dissolution. 

Questions 

1.  If  you  had  access  to  the  General  Ledger  of  a  business  organization,  tell 
exactly  how  you  could  determine  whether  it  was  a  sole  proprietorship,  a  partner- 
ship or  a  corporation. 

2.  What  legal  steps  are  necessary  in  your  state  to  incorporate  a  trading 
company? 

3.  (a)  How  can  you  ascertain  the  authorized  capital  of  a  corporation  to 

whose  books  you  have  access? 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    353 

(6)  What  is  the  relationship  between  such  authorized  capital  and  the 
net  worth  of  the  business? 

4.  How  may  a  partnership,  the  net  worth  of  which  is  $5,000.00,  incorpo- 
rate for  $8,000.00  and  issue  all  the  capital  stock  to  the  members  of  the  old  firm? 
Explain  fully. 

5.  The  statement  is  sometimes  made  that  the  Capital  Stock  account  in  the 
General  Ledger  is  a  controlling  account  of  the  Stock  Ledger.  Is  the  statement 
ever  true?    Is  it  always  true?    Discuss  fully. 

6.  In  a  certain  case,  a  person  who  subscribed  to  ten  shares  of  the  stock  of 
a  corporation  at  par  paid  $60.00  on  account  of  each  share  and  failed  to  pay  the 
balance  of  $40.00.  According  to  the  subscription  agreement,  the  corporation 
had  the  right  to  cancel  his  subscription  and  to  forfeit  the  amount  which  he  had 
paid  thereon.  This  action  was  taken.  As  an  original  exercise,  try  to  explain 
what  book  entries  would  be  necessitated. 

7.  What  is  meant  by  the  preamble  to  the  opening  entries  for  a  corporation? 
To  what  does  it  correspond  in  partnership  bookkeeping? 

8.  Why  are  no  entries  required  in  the  general  books  of  a  corporation  when  a 
stockholder  sells  his  holdings  to  another  stockholder? 

9.  In  what  respects,  if  in  any,  does  the  good  will  of  a  corporation  differ 
from  the  good  will  of  a  partnership? 

10.  If  a  partnership  disposes  of  its  business  to  a  corporation  at  a  profit, 
the  profit  is  shown  and  divided  on  the  books  of  the  corporation,  but  no  conse- 
quent loss  is  indicated  on  the  books  of  the  buying  corporation.    Explain  fully. 

11.  If  a  partnership  disposes  of  its  business  to  a  corporation  at  a  loss,  the 
loss  is  recorded  on  the  books  of  the  partnership,  and  the  consequent  gcin  is  shown 
on  the  books  of  the  corporation.    Explain  fully. 

12.  Clearly  differentiate  between  issued  and  unissued  stock. 

13.  State  what  features  may  differentiate  preferred  stock  from  common 
stock. 

14.  What  makes  cumulative  preferred  stock  usually  a  more  desirable  form 
of  investment  than  preferred  stock? 

15.  How  are  subscriptions  to  preferred  stock  differentiated  from  subscrip- 
tions to  ordinary  capital  stock? 

16.  What  is  meant  by  treasury  stock? 

17.  In  general,  is  it  an  easier  or  more  difficult  task  to  continue  the  books 
of  a  partnership  which  has  been  converted  into  a  corporation,  or  to  open  a  new 
set  of  books?    Give  reasons  for  your  answer. 

18.  Explain  how  it  is  that  some  stocks  which  have  a  par  value  of  $100.00, 
are  quoted  on  the  Stock  Exchange  at  $175.00  per  share,  while  others  are  quoted 
at  $33.00  per  share. 

19.  What  do  you  understand  by  valuation  accounts?    Illustrate. 

20.  Do  you  favor  deducting  the  amount  of  depreciation  on  machinery 
from  the  machinery  account,  or  setting  up  the  depreciation  in  a  separate 
machinery  and  depreciation  account?    Give  reasop-s  for  your  answer. 


354 


BOOKKEEPING  AND  ACCOUNTING 


21.  After  setting  up  a  reserve  for  bad  debts,  what  specific  question  must  a 
bookkeeper  decide  when  an  account  is  found  to  be  worthless? 

22.  How  are  reserves  created  and  why? 

23.  How  are  reserve  funds  created  and  why? 

24.  Is  there  any  necessity  for  the  amount  of  the  reserve  fund  to  equal  the 
amount  of  the  corresponding  reserve  account?    Explain. 

25.  (a)  To  what  proportion  of  the  net  profits  of  a  firm  are  the  individual 

members  thereof  entitled,  and  what  part  of  such  net  profits  may 
they  individually  demand? 
(6)  To  what  proportion  of  the  net  profits  of  a  corporation  are  the  in- 
dividual stockholders  thereof  entitled,  and  what  part  of  such  net 
profits  may  they  individually  demand? 


Exercise  64A 

On  October  21,  19 — ,  Mr.  David  Starr,  who  is  in  business  for  himself,  shows 
a  net  worth  of  $9,800.00,  as  disclosed  by  the  following  Balance  Sheet: 


Balance  Sheet  of  David  Starr  as  of  October  21,  19 — 


Cash 

Mdse.  Inventory 
Accounts  Receivable 
Furniture  and  Fixtures 


$2,500.00 

7,250.00 

4,800.00 

475.00 

$15,025.00 


Accounts  Payable 
Notes  Payable 
David  Starr,  Cap. 


$4,225.00 
1,000.00 
9,800.00 

$15,025.00 


Mr.  Starr  decides  to  incorporate  his  business  under  the  laws  of  the  State 
of  New  York,  with  an  authorized  capital  of  $10,000.00.  He  secures  Alfred  David 
to  subscribe  to  one  share,  George  Howland  to  another  share,  and  for  the 
balance  he  himself  subscribes. 

(1)  Show  the  opening  entries  on  the  new  books  of  the  corporation.    Sub- 

scriptions are  all  paid,  as  follows:    Mr.  David  and  Mr.  Howland  in 
cash,  Mr.  Starr  by  transferring  his  business  to  the  corporation. 

(2)  Show  the  closing  entries  in  the  books  of  the  old  concern. 

(3)  Show  the  initial  Balance  Sheet  of  the  new  company. 


Exercise  64B 

Assuming  that  in  Exercise  54A,  above,  David  Starr  had  incorporated  his 
business  for  $15,000.00,  and  that  all  the  conditions  of  Exercise  54A  prevailed 
save  that  Mr.  Starr  subscribed  for  $14,800.00  worth  of  stock,  all  of  which 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    355 

was  issued  to  him  upon  the  transfer  by  him  of  his  business  to  the  corporation, 
show: 

(1)  The  entries  in  the  new  books  of  the  corporation. 

(2)  The  closing  entries  in  the  books  of  the  old  concern. 

(3)  The  adjustment  entries  in  the  books  of  the  old  concern  on  the  assump- 

tion that  the  old  books  were  to  be  continued  in  use  by  the  corpora- 
tion. 

(4)  The  Balance  Sheet  of  the  company  as  of  October  21,  19 — , 

Exercise  64C 

Assuming  that  in  Exercise  54A,  above,  David  Starr  had  incorporated  his 
business  for  $8,000.00,  that  he  had  subscribed  for  $7,800.00  worth  of  stock, 
which  was  issued  to  him  by  the  corporation  as  payment  for  the  transfer  of  the 
old  business  to  the  corporation,  and  that  all  the  other  conditions  of  Exercise 
54A  prevailed,  show: 

(1)  The  entries  in  the  new  books  of  the  corporation. 

(2)  The  closing  entries  in  the  books  of  the  old  concern. 

(3)  The  adjustment  entries  in  the  books  of  the  old  concern,  on  the  assump- 

tion that  the  old  books  were  to  be  continued  in  use  by  the  corporation. 

(4)  The  Balance  Sheet  of  the  corporation  as  of  October  21,  19 — . 


Exercise  64D 

The  following  Balance  Sheet  shows  the  condition  of  a  partnership  as  of 
November  15,  19 — : 

Balance  Sheet  of  Dennis  &  Wilson,  as  of  November  15,  19 — 


Cash 

Accounts  Receivable 
Merchandise  Inventory 
Furniture  and  Fixtures 


$4,860.00 

10,550.00 

9,775.00 

5,060.00 


$30,245.00 


Accounts  Payable 
Notes  Payable 

Total  Liabilities 
John  Dennis,  Cap. 
Howard  Wilson,  Cap. 
Earle  Johnston,  Cap. 


$10,245.00 
5,000.00 

$15,245.00 

10,000.00 

3,000.00 

2,000.00 

$30,245.00 


On  November  15,  19 — ,  Messrs.  Dennis,  Wilson  and  Johnston  organize 
the  Superior  Trading  Co.,  Inc.,  a  corporation  with  an  authorized  capital  of 
$15,000.00,  divided  into  shares  having  a  par  value  of  $100.00  each,  and  sub- 
scribed for  as  follows:  John  Dennis,  100  shares  at  par,  Howard  Wilson,  30  shares 
at  par,  and  Earle  Johnston,  20  shares  at  par.    These  subscriptions  are  canceled 


356  BOOKKEEPING  AND  ACCOUNTING 

by  the  transfer  of  the  assets  of  the  old  firm  to  the  corporation  and  by  the  assump- 
tion by  the  corporation  of  the  outstanding  liabilities  of  the  old  firm.  Show  the 
resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  the  old  books 

were  to  be  continued  in  use  by  the  corporation. 

(4)  Show  the  initial  Balance  Sheet  of  the  corporation. 

Exercise  54£ 

Assume  that  Messrs.  Dennis,  Wilson  and  Johnston  organize  a  corporation 
with  an  authorized  capital  of  $20,000.00,  all  of  which  was  issued  to  the  members 
of  the  old  concern  for  their  right,  title  and  interest  in  the  net  capital  of  the  old 
firm,  and  that  the  other  conditions  of  Exercise  54D,  above,  remain  unchanged. 
Show  the  resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  they  were  to  be 

continued  as  the  corporation  books. 

(4)  Show  the  Balance  Sheet  of  the  corporation  as  of  November  15,  19 — . 

Exercise  54F 

Assume  that  Messrs.  Dennis,  Wilson  and  Johnston  organize  a  corporation 
with  an  authorized  capital  of  $12,000.00,  all  of  which  was  issued  to  the  members 
of  the  old  concern  for  their  right,  title  and  interest  in  the  net  capital  of  the  old 
firm,  and  that  all  the  other  conditions  of  Exercise  542),  above,  remain  unchanged. 
Show  the  resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  they  were  to  be 

continued  as  the  corporation  books. 

(4)  Show  the  initial  Balance  Sheet  of  the  corporation. 

Exercise  54G 

Now  assume  that  Messrs.  Dennis,  Wilson  and  Johnston  (see  Exercise  54D, 
above)  organize  the  Superior  Trading  Co.,  Inc.,  with  an  authorized  capital 
of  $35,000.00.  Subscriptions  were  as  follows:  John  Dennis,  $15,000.00,  How- 
ard Wilson,  $6,000.00,  Earle  Johnston,  $4,000.00,  Frank  Rich,  $2,000.00  and 
x\rthur  Wallace,  $1,000.00.  Messrs.  Dennis,  Wilson  and  Johnston  canceled  their 
subscriptions  by  immediately  transferring  to  the  corporation  all  their  right, 


CORPORATION  BOOKKEEPING  AND  ACCOUNTING    357 

title  and  interest  in  the  old  firm.    Messrs.  Rich  and  Wallace  each  paid  50% 
of  their  subscription  in  cash  on  November  15, 19 — .    Show  the  resulting  entries: 

(1)  On  the  books  of  the  corporation. 

(2)  On  the  old  books  of  the  firm. 

(3)  On  the  old  books  of  the  firm,  on  the  assumption  that  they  were  to  be 

continued  as  the  corporation  books. 

(4)  Show  the  Balance  Sheet  of  the  corporation  as  of  November  15,  19 — . 


Exercise  54H 

The  Cooper  Trading  Company  decides  to  dissolve.    At  this  time,  its  Balance 
Sheet  is  as  follows: 

Balance  Sheet  of  The  Cooper  Trading  Company  as  of  November  1,  19 — 


Assets: 
Cash 

Notes  Receivable 
Accounts  Receivable 
Mdse.  Inventory 
Furniture  and  Fixtures 


15,640.00 

1,500.00 

7,850.00 

2,400.00 

450.00 

$17,840.00 

Liabilities: 
Accounts  Payable 

Capital: 
Capital  Stock 
Surplus 


$1,245.00 

15,000.00 
1,595.00 

$17,840.00 


The  capital  stock  consists  of  150  shares  of  common  stock,  having  a  par  value 
of  $100.00  each.  Assuming  that  all  the  assets  were  converted  into  cash,  without 
any  loss  whatsoever,  and  the  liabilities  were  paid  in  full,  and  that  no  further 
expenses  were  incurred,  show: 

(1)  The  amount  due  to  each  stockholder  per  shark  of  stock. 

(2)  The  closing  entries. 

Exercise  541 

If  the  expenses  and  losses  incidental  to  the  dissolution  of  the  corporation 
discussed  in  Exercise  54/f,  above,  amounted  to  $530.00,  show: 

(1)  The  amount  due  to  each  stockholder  per  share  of  stock. 

(2)  The  closing  entries. 

Exercise  54J 

If  the  expenses  and  losses  incidental  to  the  dissolution  of  the  corporation 
discussed  in  Exercise  54H,  above,  amounted  to  $1,945.00,  show: 

(1)  The  amount  due  to  each  stockholder  per  share  of  stock. 

(2)  The  closing  entries. 


358 


BOOKKEEPING  AND  ACCOUNTING 


Exercise  54K 

The  Trenton  Machine  Works,  Inc.,  decides  to  dissolve.    At  this  time,  its 
Balance  Sheet  is  as  follows: 

Balance  Sheet  of  The  Trenton  Machine  Works  as  of  November  1,  19 — 


Assets: 

Liabilities: 

Cash 

$8,790.00 

Accounts  Payable 

$3,115.00 

Notes  Receivable 

2,500.00 

Capital: 
Capital  Stock 

Accounts  Receivable 
Merchandise  Inventory 

5,775.00 
4,050.00 

20,000.00 

Furniture  and  Fixtures 

1,500.00 

Deficit 

500.00 

$23,115.00 

$23,115.00 

The  capital  stock  consists  of  200  shares  of  common  stock  having  a  par 
value  of  $100.00  each.  Assuming  that  all  the  assets  were  converted  into  cash, 
and  the  liabiUties  paid  in  full,  and  that  the  expenses  and  losses  incidental  to  the 
dissolution  of  the  corporation  amounted  to  $1,000.00,  show: 

(1)  The  amount  due  to  each  stockholder  per  share  of  stock. 

(2)  The  closing  entries. 


PART  VI 
BUSINESS  PRACTICE  AND   CUSTOMS 

The  purpose  of  this  part  of  the  book  is  to  acquaint  the  student 
with  the  material  which  constitutes  the  basis  of  the  bookkeeper's  work. 


BUSINESS  PRACTICE  AND  CUSTOMS 


Thus  far  in  the  progress  of  our  work  we  have  made  entries  for 
transactions  which  appeared  in  a  condensed  Hst  concisely  stating  the 
essentials  of  each  exchange.  In  actual  business,  instead  of  being  sup- 
pUed  with  such  a  summary  of  transactions,  the  basis  of  the  entries  is 
found  in  orders  for  goods  received  by  maU,  over  the  telephone  or  in  other 
ways;  in  the  receipt  of  checks  and  notes;  in  the  disbursing  of  cash, 
checks  and  notes.  The  object  of  the  present  chapter  is  to  present  to  the 
reader  unacquainted  with  actual  business  details  some  of  the  salient 
features  which  occur  as  necessary  preliminaries  to  book  entries. 

I.  Selling  Goods. — Whenever  we  have  credited  Merchandise  account 
or  Merchandise  Sales  account,  it  was  because  we  found  among  our 
Ust  of  transactions  a  statement  that  goods  were  sold  to  a  certain  person. 
Such  statements,  in  actual  business,  are  preceded  by  other  circumstances. 
For  example,  an  order  for  goods  would  be  received  first.  This  order 
might  be  left  with  us  by  a  customer,  in  which  case  it  might  be  a  verbal 
or  written  order.  In  modern  business,  such  orders  are  frequently  re- 
ceived by  telephone.  The  mail  may  bring  an  order  for  goods,  or  it  may 
be  obtained  by  an  agent  or  salesman  who  is  sent  to  soHcit  orders.    A 


Ordere( 

iby 

Order  Form 

New  York,  July  1, 19—. 
R.  T.  BROWN  &  CO. 
F.  Beaver  &  Son 

24  Third  ^Avenue,  City 

Via 

SALESMAN 
Terms 

When  required 
D.R.F.                                   0.    K 

F.  Beaver 

J 



3 
2 

doz.  No.  84  Spades 
doz.  No.  59  Axes 
doz.  No.  104  Y.  Locks 

6.00 
15.00 
10.50 

18 

7 

21 

50 

46 

50 

361 


362  BOOKKEEPING  AND  ACCOUNTING 

written  order  is  frequently  in  the  form  of  a  letter  requesting  that  certain 
specified  goods  be  sent.  Where  orders  are  taken  by  agents,  a  form  is 
frequently  employed,  standardizing  the  information  contained  therein. 
As  an  illustration  of  the  form  described,  see  the  preceding  page. 

Comments. — (a)  Note  the  place  for  the  date  of  the  order. 

(h)  Observe  that  not  only  the  name  but  also  the  address  of  the  cus- 
tomer is  indicated. 

(c)  The  shipping  directions  for  v/hich  provision  is  made  are  omitted 
where  the  customer  is  a  regular  one  and  the  method  of  deUvery  is  known, 
and  also  usually  for  local  customers  to  whom  the  goods  are  deUvered 
by  local  express  companies,  or  by  our  own  delivery  system. 

(d)  Terms  are  frequently  omitted,  because  there  is  a  tendency  to 
make  terms  of  payment  standard  in  each  line.  Thus,  in  some  cases, 
all  goods  sold  must  be  paid  for  within  ten  days,  or  within  a  few  days 
after  the  first  of  the  month  following  that  in  which  sales  are  made. 
Where  all  customers  are  treated  alike,  such  terms  are  either  printed  on 
the  order  blank,  or  omitted  entirely.  Where  special  terms  are  made 
they  should,  of  course,  be  mentioned. 

(e)  Notice  that  the  goods  are  listed  on  the  order  blank  just  as  on  the 
invoice,  which  will  be  described  in  the  following  section. 

(/)  The  agent  uses  a  number  or  his  initials,  or  sometimes  his  full 
name,  in  order  to  identify  himself. 

(g)  The  fine  for  the  signature  is  to  be  filled  in  by  the  customer,  or  by 
a  representative  of  the  customer.  This  detail  is  frequently  omitted, 
though  many  modern  houses  insist  upon  the  obtaining  of  the  signature 
by  the  agent  in  all  cases.  This  is  due  to  the  fact  that  the  Statute  of 
Frauds  ^  provides,  in  one  of  its  sections,  that  for  a  contract  of  sale 
to  be  binding  one  of  three  requirements  must  be  fulfilled,  namely: 

(1)  That  a  part  of  the  goods  be  accepted  by  the  customer; 

(2)  that  a  part  payment  be  made  by  the  customer; 

(3)  that  the  customer  sign  a  contract  of  sale  which  is  to  bind  him. 
When  orders  are  received,  they  are  entered  either  in  an  order  book, 

or  the  order  sHps  are  filed,  constituting  the  equivalent  of  an  order  book. 
This  necessitates  that  all  telephone  and  verbal  orders  be  reduced  to 
writing.  Provision  is  made  for  the  filling  of  orders,  either  in  the  order 
of  arrival  or,  more  frequently,  according  to  the  time  when  dehveries 
are  requested  by  customers.  No  formal  book  entry  is  necessary  for  the 
receipt  of  an  order;  it  is  merely  necessary  that  the  order  be  handled  in 
such  a  way  that  deUvery  will  be  properly  and  promptly  made,  and  that 

^  In  New  York  the  Statute  applies  to  sales  of  goods  amounting  to  fifty  dollars  or 
over. 


BUSINESS  PRACTICE  AND  CUSTOMS  363 

the  data  contained  in  the  order  be  available  in  case  of  dispute.  The 
book  entry  is  not  made  until  after  the  goods  have  been  shipped. 

n.  Invoicing. — ^After  the  order  has  been  received,  it  is  "  filled." 
By  "  filling  "  is  meant  the  executing  of  the  order,  that  is,  the  sending 
or  the  shipping  of  the  goods  sold.  Before  filling  orders  from  strangers, 
and  also  sometimes  before  approving  of  orders  larger  than  usual  from 
old  customers,  it  is  desirable  to  obtain  information  regarding  the 
credit  standing  of  such  prospective  buyers.  For  this  purpose,  credit 
agencies  have  been  estabHshed.  The  principal  companies  furnishing 
such  information  are  known  as  Dun's  and  Bradstreet's.  William  A. 
Prendergast's  book,  "  Credit  and  Its  Uses "  (D.  Appleton  &  Co.), 
pages  191-195,  furnishes  an  excellent  introduction  to  this  very  inter- 
esting and  important  topic. 

At  the  time  when  goods  are  so  shipped,  an  invoice  or  hill  is  made  out. 
This  invoice,  which  will  be  found  illustrated  below,  is  for  the  purpose 
of  facilitating  our  charging  or  debiting  the  customer  for  the  goods  sold 
him,  and  also  to  give  the  customer  an  opportunity  to  check  up  the 
goods  received  by  him  with  those  for  which  he  is  charged  by  us.  Some- 
times the  invoice  is  inclosed  in  the  case  containing  the  goods,  especially 
to  local  customers,  otherwise  it  is  sent  by  mail.  The  "  terms  "  of  sale, 
that  is,  the  manner  in  which  payment  for  the  goods  must  be  made,  is 
almost  invariably  indicated  upon  the  invoice.  The  following  are  the 
terms  most  frequently  employed: 

1.  Cash:  Meaning  that  the  goods  must  be  paid  for  as  soon  as 
received,  and  without  deducting  any  discount.  In  actual  practice, 
this  usually  means  in  from  two  to  five  days  after  the  receipt  of  goods 
by  the  customer,  as  it  is  imderstood  that  the  customer  should  be  given 
an  opportunity  to  inspect  the  goods.  Often,  too,  it  is  interpreted  to 
be  the  equivalent  of  "on  account." 

2.  On  account:  Which  indicates  that  payment  must  be  made 
according  to  the  terms  prevalent  in  the  particular  industry  involved. 
In  many  cases,  "  on  account  "  signifies  that  payment  is  to  be  made  as 
a  result  of  a  monthly  statement  (shown  in  the  next  division)  which 
summarizes  the  total  sales  during  the  previous  month,  less  any  pay- 
ments made  thereon.  Accordingly,  in  this  case,  payment  would  be 
due  within  a  few  days  after  the  first  of  the  following  month. 

3.  Special  terms:  Among  the  more  common  of  the  sjjecial  terms 
are  2/10,  n/30;  2/10,  1/30,  n/60;  2/10,  n/60.  The  first  of  these  three 
special  terms  indicates  that  if  pa3nnent  is  made  within  ten  days  from  the 
date  of  the  invoice,  2%  may  be  deducted  from  the  amount  of  the  bill. 
The  customer  has  the  option  of  deducting  2%  as  indicated,  or  else  pay- 


364 


BOOKKEEPING  AND  ACCOUNTING 


ing  the  total  amount  of  the  invoice  after  ten  days  from  its  date  and 
within  thirty  days  from  the  date  of  sale.  The  author  has  observed  a 
tendency  in  certain  Unes  to  interpret  2/10,  n/30,  as  meaning  2%  ofiF 
if  paid  within  ten  days,  or  the  full  amount  of  the  bill  within  forty  days. 
The  interpretation  in  such  cases  is  that  "  n/30  "  means  thirty  days 
after  the  elapse  of  the  ten-day  period.  Many  merchants  condemn  this 
practice,  and  the  present  reference  is  solely  for  the  purpose  of  bringing 
to  the  attention  of  the  student  a  practice  which  is  of  some  frequency. 

The  second  set  of  the  given  terms  means  that  2%  may  be  deducted 
if  the  invoice  is  paid  within  ten  days;  1%  if  paid  after  ten  days  and 
before  thirty  days  have  elapsed,  or  the  full  amount  of  the  invoice  if  it 
is  paid  after  thirty  days  and  within  sixty  days. 

The  last  one  of  the  terms  shown  requires  no  special  conmient. 

Sample  invoices  are  herewith  illustrated: 


New  York,  Nov.  12,  19— 
Messrs.  J.  D.  Whitlock  &  Co. 
Salem,  Mass. 

Bought  of  SMITH  DRY  GOODS  CO. 
Terms  2/10— net/30                                                    Salesman— A.R. 

Shipped  via— Am.  X 

10 

Job 

5 

pes.  40  yds.  each,  No.  125  Cloth    50c. 
100  yds.  assorted  Cheviot               90c. 
pes.,  40  yds.  each.  Satin                 95c. 

200 

90 

190 

00 
00 
00 

480 

00 

Invoice  O.K.    F.  S.                                       New  York,  Nov.  12,  19—. 
Salesman — 8                                                                                 as 

Dec.  1,  19—.* 
Sold  to  A.  B.  Harrington  &  Sons, 
123  Water  St.,  City. 

Bought  of  WILLIS  PLUMBING  &  SUPPLY  CO., 
Terms  3/lO-l/6O-n/90                                             Shipped— Monohan  X 

6 

1 

Sets  No.  10  Outfit         @  $24.25  per  set 
lot  pipes 

145 
10 

50 
00 

155 

50 

BUSINESS  PRACTICE  AND  CUSTOMS 


365 


To     NEW  YORK  TELEPHONE  COMPANY,     Dk. 

PATABLB   AT   116   WMT  38TH   8TKBET,    NEW    TORK   CITY 

July  1,  19— 

LOCAIi  MEBSAQEB 

Credit  May  1 498 

Local  Service  Charge,  Month  Ending  July  31 

10 

'>^ 

Sent  in  May 415 

Additional  Local  Measagea,  Month  Ending  May  31 . .  @. . .  ^ 

Credit  June  1 83 

Toll  Service,  per  Statement  Herewith,  May  21  to  June  20  Inc.. 

~ 

67 
92 

btjbscriber's  record 

Paid  by 

Check  No 

BUI  Rendered 

Bank. 

James  Habtinqs 

Date 

2793 

Gree  Room  1300 

45  West  34th  St. 

All  Bills  Payable  Monthly 


Phone  Stuyvesant  2528 

1^    Monolith  Collection  Agency 

TO  EXCLUSIVE  TOWEL  SERVICE  CO.,  Dr. 
^  65  Fourth  Avenue,  New  York 


To  Service  rendered  for  month 


Mar. 
Apr. 
May 


Received  Payment 
Exclusive  Towel  Service  Co. 


Make  all  Complaints 
Direct  to  Office 


Per. 


75 
75 
75 


25 


4.  Dating:  Many  concerns  order  goods  months  before  they  are 
actually  needed.  The  manufacturers  who  supply  the  demands  of  such 
customers  are  then  compelled  to  begin  manufacturing  long  before 
the  goods  will  be  required.  Inasmuch  as  the  storage  facilities  of  manu- 
facturers are  frequently  inadequate  to  handle  all  the  manufactured 
goods  from  the  period  when  the  first  of  the  finished  product  is  ready  for 
delivery  until  the  date  for  which  the  goods  are  ordered,  it  has  become 


366 


BOOKKEEPING  AND  ACCOUNTING 


quite  customary,  in  many  lines,  to  ship  goods  to  customers  weeks  and 
even  months  before  they  are  needed  by  customers.^  As  it  would  not  be 
fair  to  charge  these  goods  as  of  the  date  when  dehvery  is  made,  the  prac- 
tice of  "  dating  "  has  sprung  into  being.  By  dating  is  meant  the  giving 
of  an  extra  allowance  of  time,  so  as  to  push  forward  the  period  from  which 
the  discount  term  is  to  be  reckoned  in  order  to  avoid  handicapping 
customers  to  whom  early  deUveries  are  made.  Theoretically,  the  dating 
would  be  accomplished  by  making  the  invoice  read,  say,  September  1 


by 

NEW  ENGLAND  MILLS  COMPANY 

45  WEST  34tl.  STREET 

New  York.  O^Jry, 

Soli  to  ^:2!l:^^^.^x/g^^^^ 


J51— 


Temu-. — -/^^  " 


iF-7^y>.ya^^  ^;et^_ 


SLip  Vi.   ^^Z,ci^..-79^t^^K^^ 


/^xT 


instead  of  July  12.  In  actual  practice,  the  matter  has  been  standardized 
so  that  we  speak  of  sixty-day  datings,  ninety-day  datings,  etc.  A  sixty- 
day  dating  means  that  the  invoice  becomes  subject  to  the  ordinary 
terms  after  the  elapse  of  sixty  days  from  the  date  appearing  thereon. 
This  fact  is  often  indicated  by  marking  "  60X  "  after  the  ordinary 
credit  terms. 

5.  >SaZes  entries:  At  the  same  time  that  the  invoices  described  in 
the  previous  section  are  made  out,  a  duplicate  is  also  made.  The 
duplicating    (sometimes   tripUcating)    is   accomplished    on   the   type- 

2  The  real  origin  of  "  dating  "  is  to  be  found  in  the  practices  of  an  earlier  business 
generation.  At  first  it  was  a  favor  to  a  few  buyers,  but  now  the  practice  is  quite 
universal. 


BUSINESS  PRACTICE  AND  CUSTOMS 


36: 


writer,  "  billing  board,"  or  on  rotary  billing  devices.  The  duplicate 
invoice  becomes  the  original  entry  for  the  sale.  It  is  charged  to  the 
account  of  the  customer  and  is  credited  to  the  Merchandise  Sales 
account.  What  has  just  been  described  is  the  more  usual  practice, 
but  some  concerns  still  enter  each  invoice  in  a  Sales  Book,  from  which. 


fl^.-//.....: 


In  Account  with' 


The  Monolith  Realty  Co. 

45  West  34th  Street 

NEW  YORK 


Bent  from //2:^i^f7^../.....io- 

EXTRAS- 


5^^.191  — 


/^^     ^^ 


Paid 


%l91rrr 


The  Monolith  R^lty  Co. 
Per ?=?J^^ 


instead  of  from  the  invoice,  posting  is  made.  But  as  some  readers  have 
not  yet  taken  up  the  study  of  sales  books,  the  student  will  regard  the 
posting  from  the  invoice,  or  from  a  book  in  which  a  copy  of  the  invoice 
is  retained  or  made,  as  equivalent  to  the  Journal  entry  which  results 
from  each  sale,  namely,  a  debit  or  charge  to  the  customer  and  the  credit 
to  Merchandise  Sales.    The  point  to  be  emphasized  in  this  connection  is 


368 


BOOKKEEPING  AND  ACCOUNTING 


that  modern  bookkeeping  entries  for  a  sale  originate  with  the  invoice, 
instead  of  with  a  brief  description  in  a  series  of  transactions,  such  as  the 
student  has  been  accustomed  to  employ  in  the  first  part  of  this  book. 
6.  Receipting:  Until  quite  recently  it  was  customary  to  obtain 
receipts  for  the  payment  of  all  invoices.  Such  a  receipt  consisted 
of  an  acknowledgment  of  payment  on  the  invoice  itself,  sometimes  in 
the  form  of  a  separate  receipt.  It  is  no  longer  usual  to  insist  upon 
such  receipts,  and  as  a  matter  of  fact  many  concerns  prefer  not  to 
receive  them.  This  is  due  to  the  fact  that  the  check,  which  is  the 
usual  means  of  settling  an  account,  is  considered  a  sufficient  receipt 
in  itself,  because  the  indorsement  on  the  check  shows  that  the  money 
passed  through  the  hands  of  the  proper  persons.  Moreover,  the  obtain- 
ing of  receipts  has  become  quite  cumbersome,  due  to  the  fact  that  when 
payment  is  made  the  invoice  must  be  returned  to  the  seller  for  his 
receipt,  and  only  too  frequently  the  invoices  might  go  astray  during  the 
process.  However,  when  such  receipts  are  required,  acknowledgment 
is  written  or  stamped  on  the  face  of  the  invoice  and  shows  the  date 
of  pajmaent,  the  name  of  the  concern  receiving  payment  and  the  repre- 
sentative who  actually  received  the  payment.  The  invoice  on  page  364, 
when  so  receipted,  would  appear  as  follows: 


Invoice  0.  K.— F.  S.                                       New  York,  Nov.  12,  19—. 
Salesman — 8                                                                     as 

Dec.  1, 19—. 
Sold  to  A.  B.  Harrington  &  Son 
123  Water  St.,  City 

Bought  of  WILLIS  PLUMBING  &  SUPPLY  CO., 
Terms:  3/10-l/60-n/90                                             Shipped  Monohan  X 

6 
1 

sets  No.  10  Outfit                     @  $24.25 
lot  pipes 

Less  dis. 

145 
10 

50 

155 
4 

50 
67 

3% 

150 

83 

Paid  Dec.  11,  19— 
Willis  P.  &  S.  Co. 
D.  J.  K. 

BUSINESS  PRACTICE  AND  CUSTOMS 


Obviously,  the  receipting  of  the  invoice  follows  the  payment  of 
the  same.  The  entry  for  the  receipt  of  the  pajnnent  would  be  re- 
corded as  a  charge  to  cash  and  a  credit  to  the  customer.  If  a  dis- 
coimt  were  allowed,  Cash  and  Discount  on  Sales  would  be  debited 
while  the  customer  would  be  credited.  Instead  of  having  this  informa- 
tion set  down  in  the  Ust  of  transactions,  the  need  for  the  entry  would 
arise  upon  the  receipt  of  cash  or  a  check,  and  the  entry  would  follow 
from  such  receipt,  rather  than  from  a  statement  to  the  effect  that 
money  had  been  received. 

in.  Monthly  Statements. — It  is  quite  customary  to  send  to  cus- 
tomers at  the  beginning  of  each  month  a  statement  of  the  Ledger 
accoimt  as  it  appears  upon  our  books  (creditor's  or  seller's  books) 
on  the  last  day  of  the  preceding  month.  Such  a  statement  is  some- 
times sent  as  the  equivalent  of  a  request  for  the  settlement  of  the  account; 
more  frequently,  however,  to  afford  the  customer  an  opportunity  to 
verify  the  account  and  correct  any  errors  that  may  exist.  The  monthly 
statement  which  would  be  sent  to  Mr.  T.  Brown  (page  20),  on  the 
assumption  that  the  last  transaction  with  him  was  on  March  8,  would 
appear  as  follows: 


Folio 

185 

STATEMENT 

Nfiw  York. 

April  1,  19— 

Mr.  T.  Brown 

Newark,  N.  J. 
In  account  with  BENSON  &  MELLINGER 

810  Broadway 

Mar. 

1 
8 

To  Mdse. 
To  Mdse. 

80 
100 

00 
00 

180 

00 

Comments. — a.  Note  that  the    printed    portion  of    the    monthly 
statement  corresponds  quite  closely  to  the  invoice. 

b.  There  is  no  need  of  describing  the  items  sold,  as  the  function  of 
the  monthly  statement  is  to  recapitulate  the  individual  sales. 

c.  Note  that  the  statement  shows  that  T.  Brown  is  indebted  to  us 
to  the  sum  of  $180.00. 


370 


BOOKKEEPING  AND  ACCOUNTING 


On  March  10,  T.  Brown  paid  us  $125.00  on  account.  In  the  pre- 
ceding paragraph,  we  assumed  that  no  such  payment  had  been  made. 
The  monthly  statement  which  would  be  a  true  exhibit  of  Mr.  Brown's 
Ledger  account  with  us  is  as  follows: 


Folio 

185 

STATEMENT 

Npw  Ynrk      April  1. 

19— 

Mr.  T.  Brown 

i 

Newark,  N.  J. 
In  account  with  BENSON  &  MELLINGEE 
810  Broadway 

Mar. 

1 
8 

10 

To  Mdse. 
To  Mdse. 

Or. 

By  Cash  on  account 

80 
100 

00 

00 

180 
125 

00 
00 

55 

00 

Comments. — a.  Note  that  the  first  portion  of  the  invoice  is  identical 
with  that  previously  shown. 

h.  Observe  carefully  how  the  deductions  resulting  from  pajonents 
are  shown. 

c.  Is  not  the  amount  of  Mr.  Brown's  indebtedness  to  us  clearly 
indicated? 

A  third  form  of  monthly  statement  will  now  be  discussed.  It 
involves  all  the  elements  thus  far  treated  of,  but  includes  another. 
The  additional  item  concerns  itself  with  a  balance  due  from  the  previous 
month,  and  shown  in  a  previous  statement.  For  the  purpose  of  illus- 
tration, let  us  consider  Mr.  Brown's  statement  as  of  May  1.  The  April 
1st  statement  showed  that  Mr.  Brown  owed  us  $55.00.  If  during 
April  he  made  four  additional  purchases  from  us,  and  paid  us  two  items, 
one  a  note  and  one  a  check,  and  also  returned  to  us  some  merchandise 
for  which  we  gave  him  credit,  the  statement  which  we  would  send  him 
would  be  as  shown  on  the  next  page. 

Comments. — a.  Note  that  the  balance  shown  by  the  April  1st  state- 
ment appears  on  the  first  hne. 

b.  The  sales  during  April  are  Hsted  immediately  following. 


BUSINESS  PRACTICE  AND  CUSTOMS 


371 


c.  The  total  of  the  first  item,  plus  subsequent  sales,  is  carried  out 
into  the  second  money  column,  as  shown. 

d.  The  credits  are  separately  itemized,  so  as  to  be  self-explanatory. 

e.  The  balance  of  $125.00  is  clearly  established. 


STATEMENT 
Folio..->8? New  York, 

May  1, 

19— 

Mr.  T.  Brown 

Newark,  N.  J. 
In  account  with_BMSON  &  MELLINGER    _ 

810  Broadway 

April 

1 

6 

9 

15 

23 

4 
10 
25 

Balance  as  per  Statement  rendered 
To  Mdse. 

"  Mdse. 

"  Mdse. 

"  Mdse. 

Or. 

By  Cash 

"     Mdse.  returned 
"     Note  (30  days) 

55 

100 

26 

75 

150 

00 
00 
50 
00 
00 

406 

281 

50 
50 

150 

6 

125 

00 
50 
00 

125 

00 

It  was  stated  previously  that  the  object  of  a  monthly  statement 
was  twofold,  either  a  request  for  payment  or  a  comparison  of  Ledger 
accounts  between  the  creditor  and  the  debtor.  Sometimes  creditors 
stamp  at  the  bottom  of  their  statement  a  notation  to  the  effect  that  the 
purpose  of  the  statement  is  to  afford  the  debtor  an  opportunity  to  com- 
pare his  Ledger  account  with  his  creditor's,  and  is  not  a  "  dun."  Busi- 
ness men  employ  the  term  "  dunning  "  to  express  the  fact  that  efforts 
are  being  made  to  effect  a  collection.  Other  methods  of  dunning  or 
collecting  consist  of  writing  special  letters  requesting  payment,  sending 
out  personal  collectors,  and  as  a  final  resort  more  drastic  measures 
are  emploj^ed,  which  cannot  be  discussed  in  this  connection. 

IV.  Receipts. — ^We  have  already  discussed  receipting  in  connection 
vv^ith  sales.     We  have  still  to  consider  the  subject  of  receipts  in  general. 

a.  Receipts  on  account. — When  we  receive  cash,  a  check  or  a  note 
from  a  debtor,  in  part  payment  of  his  account,  it  is  sometimes  required 


372 


BOOKKEEPING  AND  ACCOUNTING 


that  we  issue  a  receipt  for  such  payment.    The  following  forms  answer 
the  purpose: 


$200.00 

Received  from  John  Jones 
Two  Hundred  no/00 
on  acct. 


New  York,  July  8,  19—. 


^  Dollars 


H.  Smith. 


Received  from  John  Jones 
his  30-day  note  for  Two  Hundred  no/00 
on  acct. 


New  York,  July  8,  19—. 

Dollars 
H.  Smith. 


b.  A  similar  receipt  is  often  required  when  the  payment  cancels  the 
entire  debt.     The  following  form  requires  no  further  comment: 


$200.00 

Received  from  John  Smith 
Two  Hundred  no/100 
in  full  of  acct. 


New  York,  July  8,  19—. 

Dollars 
H.  Smith  &  Co. 


c.  Some  lines  of  business  employ  special  receipts  because  of  the 
nature  of  their  business.     Several  forms  are  submitted  for  inspection: 


NATIONAL  BUSINESS  INSTITUTE 
45  West  34th  Street 

New  York,  Mar.  18,  19—. 

Received  of^l^J^^^-BSllB^-. 

Fifty  no/100 


rr:r:rr  Dollars 


For:  on  a/c  of  Course  A. 
Nori485 


NATIONAL  BUSINESS  INSTITUTE 

D.  J.  K. 


per., 


BUSINESS  PRACTICE  AND  CUSTOMS  373 


New  York,  Apr.  2,  19--. 
Received  from  Ess-Arc  Co 


One  and  50/100  'r:rrr::rr:rrrr:rrr:r^^  Dollars 

For  one  insertion  on  Apr.  3,  19 —  six-line  ad. 
$1.50  N.  Y.  Times. 

By  C.  J.  C. 


$100.00  New  York,  July  5,  19— 

Received  from  The  Rambler  Company 
One  Hundred  no/ 100  X:rrrrr:rrrr„rrrrrrr:rrr::r:^^ 
for  rent  of  premises  Nos.  803-4  from  July  1  to  July  30,  1916. 

THE  WRIGHT  REALTY  COMPANY 
per  B.  S. 


V.  Filing. — The  subject  of  fihng  plays  an  important  part  in  the 
internal  affairs  of  every  modern  business  house.  The  letters  which 
are  received,  as  well  as  copies  of  those  which  are  sent,  orders,  invoices, 
statements  and  many  other  papers,  must  be  placed  so  as  to  be  readily 
available  for  reference  whenever  the  need  arises.  Various  devices  are 
on  the  market  for  the  purpose  of  filing  the  many  papers  which  a  modern 
office  needs  to  keep. 

The  simplest  form  of  file  is  the  so-called  spindle  file.  This  consists 
of  an  upright  wire  or  iron-pointed  shaft  secured  upon  a  firm  base,  upon 
which  papers  are  kept.  This  is  a  very  crude  affair,  and  whenever  used 
in  the  modern  office,  it  is  for  the  temporary  keeping  of  papers  and  memo- 
randa. The  cUp  file  is  a  similar  device  for  temporary  purposes.  It 
consists  essentially  of  a  clip  which  will  retain  papers  and  this  clip  is 
either  detachea,  or  it  is  attached  to  a  board  or  hook. 

Both  of  the  foregoing  files  play  Httle  part  in  office  economy.  Box 
files  are  much  more  frequently  found.  This  is  a  case  of  cardboard  or 
wood,  containing  a  series  of  paper  partitions  labeled  in  various  ways. 
The  most  common  arrangement  is  a  labeling  device  consisting  of  the 
letters  of  the  alphabet.  Letters,  invoices,  orders  and  other  papers  relat- 
ing to  concerns  whose  names  commence  with  the  letter  **  A  "  are  placed 
or  filed  in  the  compartment  or  division  labeled  "  A  ";  similarly  for  the 
other  divisions.  Some  papers  which  have  to  be  referred  to  on  various 
days  of  the  month  are  arranged  in  the  file,  which,  instead  of  being 
labeled  alphabetically,  is  labeled  chronologically,  that  is,  it  contains 
a  series  of  dates.    Papers  which  have  to  be  referred  to  on  certain  dates 


374 


BOOKKEEPING  AND  ACCOUNTING 


are  placed  in  their  appropriate  division.     Illustration   of  both  kinds 
of  files  will  be  found  in  the  accompanying  cuts. 


Vertical  files  are  becoming  very  popular.  Essentially,  they  consist 
of  drawers  with  a  sectional  division  similar  to  that  of  box  files.  Most 
frequently,  instead  of  having  prearranged  sections,  folders  are  employed 
into  which  all  letters  or  papers,  or  whatever  the  matter  is  that  is  to  be 
retained,  is  placed.  Each  folder  is  lettered  individually,  so  that  all  the 
material  relating  to  Smith,  for  example,  would  be  found  in  the  folder 
labeled  Smith,  and  filed  in  the  compartment  or  section  labeled  "  S." 
Illustrations  of  the  folder  and  the  compartment  are  herewith  shown: 


Folders 


Tabbed  Square  Gut 

Folder  Folder 


BUSINESS  PRACTICE  AND  CUSTOMS  376 

Numerical  files  are  similar  in  construction  to  the  vertical  files,  but 
the  index  consists  of  a  figure  instead  of  the  alphabetical  arrangement. 
Each  folder  is  given  a  number,  while  a  card  index,  alphabetically 
arranged,  refers  to  the  numbers,  making  the  folder  readily  available 
for  use. 

These  brief  remarks  regarding  fiUng  systems  are  intended  for  those 
who  have  had  no  actual  office  experience.  The  man  or  woman  who  is 
acquainted  with  office  routine  will  probably  find  the  matter  here  detailed 
aheady  famihar.  For  both  classes  of  readers,  the  novice  as  well  as  the 
trained  one,  the  catalogues  of  leading  filing  cabinet  concerns  are  sug- 
gested for  fm-ther  study. 

VI.  Remittances. — We  have  already  learned,  under  the  section 
deahng  with  the  receipting  of  invoices,  that  it  is  no  longer  universally 
customary  to  send  with  the  pajnnent  of  an  invoice  the  invoice  itself  to 
be  receipted.  Instead,  "  remittance  slips  "  which  accompany  the  check 
in  payment  of  one  or  more  invoices,  are  now  frequently  employed.  This 
remittance  slip  gives  all  the  information  that  it  is  necessary  for  the 
creditor  to  know  re  .rding  what  items  any  particular  check  in  question 
cancels.    Various  forms  will  be  shown  so  as  to  make  the  matter  clear. 

a.  A  simple  form: 


Folio  .AC™  / 

TO  ..^^..^..^2^  7^0//f-. 

Enclosed  you  will  find  our  cheok  number  /L£^_»  on 
First  National  Bank,  ^ot/TxT^?,^..,  in  settlement  of  invoices 

of  '^CesJ.&JLlJ^.zJ.^. ,  less  ^.;4,.^^:4c^,,.,e^^. 

Remarks    ^^L<^y^.^:^y ^ _^^  j  .,..  y^^  ^._  >*^  ^^fg^^^ 


X.   Y.  iJ.   CO. 


Comments. — Observe  that  this  is  practically  a  "  form  "  letter.  By 
'*  form  "  letter  is  meant  a  printed  letter  so  arranged  as  to  make  un- 
necessary the  repetition,  in  each  instance,  of  those  matters  which  every 
such  letter  has  in  conmion.  _The  spaces  which  have  been  filled  out  in 


376 


BOOKKEEPING  AND  ACCOUNTING 


script  are  those  which  the  bookkeeper  or  clerk  fills  out  in  each  case  to 
correspond  with  the  needs  of  any  specific  instance. 
b.  A  type  of  the  form  employed  by  many  concerns: 


1  Water  St.  New  York  July  5,  19—  Irving  No.  4547 

Pay  Memorandum  from  JENKINS  &  SONS 

To  Messrs.  Williams  &  Rand,  City 

The  annexed  check  is  issued  in  payment  of  account  as  per  statement  below.     Indorsement 
on  back  of  check  constitutes  receipt  and  no  other  acknowledgment  is  necessary. 


Account  to  1  inst.,  as  per  your  statement 


Less  2% 

Less  freight 

Net  amount  herewith 


600 

00 

500 

00 

400 

00 

1,500 

00 

30 

00 

24 

00 

54 

00 

1,446 

00 


Comments. — 1.  Note  how  the  individual  invoices  which  are  paid 
are  hsted. 

2.  Note  how  the  discount  is  deducted. 

3.  Observe  also  how  any  other  deductions  are  made. 

4.  The  amount  of  the  check  should  correspond  with  the  "net 
amount  herewith." 

c.  Special  forms: 

Some  concerns,  like  the  New  York  Telephone  Company  or  the  Con- 
solidated Gas  Company,  for  example,  provide  for  their  customers  a 
ready  remittance  slip.  The  following  example  of  the  form  employed 
by  the  New  York  Telephone  Company  requires  no  comment: 


2793  James  Hastings 

Gree  Room  1300 

45  West  34th  St. 


10 


92 


July  1,  19- 


This  stub  should  be  inclosed  with  remittance. 
When  payment  is  made  by  check  bill  should  be 
retained  by  you — note  space  provided  for  your 
record.  Receipts  will  be  mailed  on  check  payments 
when  specially  requested. 

New  York  Telephone  Company 


BUSINESS  PRACTICE  AND  CUSTOMS 


377 


d.  There  is  a  tendency  to  do  away  with  remittance  slips,  by  incor- 
porating in  the  check  the  information  usually  contained  in  remittance 
slips.     The  following  forms  are  self-explanatory: 


THWCMccK  ta  IN  scTTUMcirr  or 

Valle    rubber  company 
automobile  tires 

New  Haven.  Conn 
Pay  TO  THE  oftDER  or 

Nn 

19 

* 

OAT. 

AMOUNT 

— 

Dollars 

nwiccs 

TO  THE                                                                                          VALLE 

FIRST  National  Bank 

23-23                 ANYWHERE.   U.   S.  A. 

RUBBER  COMPANY 

us*   ruClOKT 
TOTAU  DCDUCnONS 
AMOUMT  or  CMCC* 

".ffsss-^^s^ffc^e'Ss^yy"" 

..»..»«» 

TRKAaURIN 

1 

1 
t 

I 

i: 

f  s 

f    *- 

i      Z 

I  i 

1 

VII.  Shipping  Goods. — ^We  learned,  in  the  division  dealing  with 
orders,  that  the  manner  of  shipping  goods,  together  with  the  medium 
by  which  dehvery  was  to  be  effected,  was  an  important  one.  Until 
quite  recently,  all  such  deUveries  were  made  by  local  express  or  private 
delivery  system  when  the  address  of  the  purchaser  was  within  the  dis- 
trict of  the  seller;  and  when  at  a  distance,  or  sometimes  even  when  close 
by,  the  goods  were  shipped  by  express  or  by  freight.  We  shall  now 
consider  shipping  by  express  and  by  freight,  as  well  as  by  the  device 
which  has  become  a  very  important  factor  in  the  commercial  life  of  our 
coimtry,  that  is,  the  Parcels  Post  division  of  the  Post  Office. 

1.  Delivery  by  Express. — Express  companies  accept  deliveries  to  all 
parts  of  the  country  as  well  as  to  foreign  countries.    Packages  which  are 


378 


BOOKKEEPING  AND  ACCOUNTING 


to  be  shipped  are  properly  cased  and  labeled,  and  then  given  into  the 
custody  of  an  express  agent.  At  this  time  it  is  customary  to  obtain 
a  receipt  from  the  agent  which  binds  the  express  company.  In  case  of 
loss,  except  in  a  few  special  cases,  the  buyer  and  not  the  seller  must  seek 
redress  from  the  companj^,  in  virtue  of  the  law  of  sales,  which  holds  that 
title  to  goods  passes  from  the  seller  to  the  buyer  as  soon  as  the  goods 
have  been  intrusted  to  a  ''  common  carrier."  Express  companies, 
railways  and  steamship  lines  are  the  commonest  types  of  such  carriers. 
If  desired,  such  express  receipts  may  be  obtained  in  duplicate,  one  copy 
being  retained  by  the  seller,  and  the  other  sent  to  the  buyer,  who  uses 
it  for  the  purpose  of  identifying  his  goods  if  necessary,  and  in  some 
cases  for  making  a  claim  upon  the  express  company  for  failure  to  deliver. 
The  express  companies,  by  arrangements  with  railways  and  steamship 
lines,  make  quick  dehveries  to  all  parts  of  the  country  and  to  most  parts 
of  foreign  countries.  The  following  express  receipts  will  prove  interest- 
ing and  instructive: 


mm  EXPRESS  COMPAWY 

b0kba.it  op  ohseb 

AJla  FOOD  PBODOCTS 
KBSiroaB  coBT  or  i.msa 


MONEY  ORDERS 


TRAVE'.ERS'  CHEQUES 

■.TABI,B     A.J,1j     OTXII    TB[«    WOXI.B 

UBBD  AS  IVXRXSATIoaAI. 

OUUUIVOT 

FOREtaW    RKMITTANCEB 

BT   Sax7Ta   OK  MO&'ICT   OBDRBB. 


FOREIGN  DEPARTMENT 
SUPERIOR  SERVICE 

roR 

SHIPMENTS  ABROAD 


UNIFORM  EXPRESS  RECEIPT 

ADAMS  EXPRESS  COIVSPANY 


NCN-KESOTIABLE  RECEIPT 

Rjcclvai  {rem 

clistincalloDS  and  tariffs  la  sffsct  on  the  iiM  htmi,. 


.191- 


.s!i!)]ect  to  the 


shipper  f3  ii9_ 


value  herein  stated  and  warranted  h} 
Dollars. 


CsflslgRed  to. 


.Charges. 


which  tho  Company  agrees  to  carry  ueon  th«  terms  end  conditions  prlntnd  on  the  back  horoof, 
to  which  the  shipper  agreos,  ansi  »&  ovSdencs  thereof,  aocepts  and  signs  this  receipt. 


Shipper 


For  the  Company. 


NOTE  —The  Company'a  charge  is  based  upon  the  character  of  the  property,  of  which  its  value  is  ea  element,  and  Its  nia» 
must  be  declared  in  writing  by  th^  shipper  unless  its  character  is  otherwipe  disclosed.  When  goods  are  hidden  from  view  by 
wrapping,  boxing  or  other  means  and  the  company  ia  not  notifled  of  the  cliaracter  thereof,  the  shipper's  declaration  of  value  may 
be  made  by  notation,  "not  exceaoing  ?Wi.0O"  or  "not  exceeding  $50.00  or  60  conts  per  pound,  actual  weight." 


2.  Delivery  by  Freight. — Bulky  articles,  as  well  as  many  others,  are 
frequently  shipped  by  freight  rather  than  by  express,  on  account  of  the 
saving  in  transportation  cost.  When  shipping  by  freight  the  goods 
must  be  delivered  to  the  railway  or  steamship  company  which  will  deliver 
the  goods  to  the  freight  yard  or  wharf  nearest  to  the  consignee,  that  is, 
to  the  person  to  whom  the  goods  are  directed.     The  railway  company 


BUSINESS  PRACTICE  AND  CUSTOMS 


379 


TERMS  AND  CONDITIONS 


L  Tk*  proTtitOM  of  tt*  reedpt  (htll  Isnr*  to  tb*  bracfit  of  and  b« 
Mndlag  upoD  tb*  cooilnoor.  tbe  cooaUBce  and  all  carriers  bawlllnc  tUs  aUp- 
DMBt,  and  ihall  appi/  {o  aoi  rccaoslKnm«nC  or  return  tbereot. 

2  Tbe  rsta  rbarged  (or  carrylDf  aald  propertr  t«  drpeodent  upon 
Id  wrltlBi 


actoal  rnh 


ojwrty 


at  be 


speclScally  ttatcd  In  wrltiof  by 
>r  an  actual  ralue  not  exceeding 


leaa,  or  not  exceedlnij 
flft^  ceota  per  pound,  actual  welcbt,  for  any  ablpment  la  exceaa  of  one 
bvodrrd  pouoda.  If  tlie  actual  ralue  la  (reater  tban  flfty  dollars  for  any 
ablpment  of  one  huudred  pounds  or  lees,  or  exceeda  Bftj  fenta  per  pound, 
actual  wclfbt,  for  any  iblpwent  In  excess  of  one  hundred  pounda,  sucb  actual 
ralus  must  be  speclflcally  stated  In  writlait  by  tbe  shipper,  and  ezcesa  ebarxes 
for  sucb  greater  value  must  be  paid  tberefer  In  accotdaJica  with  tb*  latrfullj 
pabUsbed  tariffs  of  tb«  Company. 

S.  Sa)d  property  1*  accepted  aa  mrrcbaDdlse  only,  and  the  Company  aball 
not  be  lliible  for  tbe  lose  of  money,  bullion,  bonds,  coupons.  Jewelry,  precicor 
stones,  valuable  papers  or  otbcr  mattcr-of 
articles  ore  enumerated  In  tbe  receipt, 
sucb  acttclcs  except  tbrougb  Its  mency  department. 

4.  Uniesa  eausetl  by  ita  avrn  neoUgcnc*  or  that  of  Its  agenta, 
tba  Company  shall  not  bo  liable  for  — .  ^^  ^          ,     ^ 

a.  Difference  In  welcbt  or  quantity  caused  by  aDrlaka<eh  leanca  or 

ersporstlon. 

b.  Tbe  death,  tnJOry  or  eacape  of  Uee  trelsbt 

B.  tJnlcas  caased  In  whole  *r  to  part  by  Ita  owa  negligence  or  *bat  of  Its 
amatlL  tbe  Company  sball  not  be  liable  for  loss,  damage  or  delay  caused  by  — 
a.  Tte  act  or  default  of  tbe  shipper  or  owner, 
k.  Tbe  nature  of  tbe  property,  or  defect  or  Inherent  Tlce  tberelii. 
e.  Improper  or  Insuflcleot  packlnfc,  securlni;  or  addressing. 

&  The  Act  of  Cod,  public  '  -- 

Hots,    strikes,    perils   o 
Incident  to  a  state  of 

«,  Tke  ezamlnattoo  by,  or  partirJ  dellrery  to,  tbs  conaignea  of 
C.  O.  D.  ahlpmenta.  .  • 

C  Delivery  under  Instructions  of  consignor  or  cenalgvee  at  statlona 
where  there  Is  no  aueut  of  the  Compaay  after  sncSi  ahlpmenta 
have  been  left  at  sucb  statlona. 


fortttlOD  by  express  with  ordlsary  cata. 


occnrrenca  ta  Coatoma  ware- 


7.  If  no  express  company  baa  an  ageocy  at  tbo  point  of  desUnatton, 
said  property  may  be  carried  to  tba  ageocy  Deareat  or  Boat  cesvenluit  thereto 
and  the  consignee  notified. 


8.  Claims  for  losa,  damage  or  delay  most 


In  writing  ta  tha 


faint  of  delivery  or  at  tbe  polut  of  origin  wlthla  four  months 
/4>e  Instituted  within  two  years  after  dillTcry,  or,  ' 
for  delivery  has  claused, 
io  brought  tbe  carrier  ■ 


and  suits  musC/lw  InatUuted  within  tw 
(allare  to  deliver  after  a  reasonable 
Ualau  dalma  are  so  mada  And 


0.  tf  any  C.  O.  D.  ta  not  paid  jrltbln  Olrty  daya  after  nottca  of  con. 
dcUvery  baa  been  mailed  to  the  ahlpper,  tba..  Company  way,  at  its  option, 
retnrn  the  property  to  tbe  consignor  and  collect  tbe  cnarges  for  tiaasporta- 
tloo  both  waya. 

10.  The  Company  shall  not  be  required  to  make  free  delivery  at  points 
where  It  mnlnulns  no  free  delivery  senico  nor  at  any  point  beyond  Its 
esUbUsbed  and  published  delivery  llmlta. 

Special  Adilittonal  Provlslona  aa  to  Shipments  Forwarded  from  the 
United  States  to  Ptacea  In  Foreign  Countrlea. 

11.  If  tbe  destination  speclfled  In  this  receipt  is  In  a  foreign  country, 
the  property  covered  hereby  sball,  as  to  transit  over  ocean  routes  and  by 
tbdr  foreign  conaectloos  to  sucb  destination,  be  subject  to  all  tbe  terma  and 
conditions  of  tbe  receipts  or  bills  of  lading  of  ocean  carriers' as  accepted  by 
the  Company  for  tbe  shipment,  and  of  forel^rn  carriers  participating  In  tbe 
transportation,  aod  as  to  such  transit  Is  accepted  for  transportation  and 
delivery  subject  to  tbe  acts,  ladiaBS,  laws,  regulations  and  custema  of  oversea 
and  foTelgn  carriers,  custodians  and  governments,  their  employes  and  ageala. 


United   i-tatca  which   may  ba  accasloncd  by  aay  aacb  acts,  ladings,  laws, 
regulations  or  castoma. 

13.  It  U  hereby  sgrced  that  tba  property  destined  to  such  foreign 
coantrlcs,  and  assessable  with  foreign,  governmental  or  customs  duties,  taxe!), 
or  charges,  may  be  stopped  '      '         •-     -  .-  -  ■  .--    --     •■'-       --  j     — « 


transit  at  foreign  ports,  frontiers 


AMERICAN  FXPRFSS  COMPANY  at 

RfiPifiiYfirt  Troin 

$rt)»ett«tMCtmm«stlsaiaidTsfmila«ft»cteadis*ili«ec*Btsd.t»«»is»«0s«NrslB«ftsrds»o«i*«.w»le»«listijfs««C<nii»«nyi^                                                                                      j 
6049  4  6051)                fse*W»i«.ds.lstM.»T»«teov«.tthl.luK>».lort:(*l»s.b'p»r.f«.s.«i<sisrtd«iestl»n).f..ec.ptsis«ilis.ll>l.™^              (WOH-HEaoTIABtE  RECKirr.)       j 

SATE 

MSCBIPTIOH 
C0HTEKT3 

Valin  Henia  Stsled 

sod  WarrsnUd  by 

S»lpp«l.b. 

CONSXQHBD  TO 

rE37DrinoR. 

P03  SBS  COXPiST 

Shipper. 

or  the  steamship  line  furnishes  receipts  similar  to  those  given  by  the 
express  companies.  Frequently,  when  shipping  goods  to  distant  points, 
and  almost  invariably  when  sending  goods  abroad,  instead  of  freight 
receipts,  legal  documents  known  as  bills  of  lading,  abbreviated  B/L.,  are 
employed.  These  bills  of  lading  are  made  in  tripUcate,  one  of  which  is 
retained  by  the  carrier,  and  the  other  two  are  furnished  to  the  consignor 
(shipper,  seller).    The  seller  keeps  the  duphcate  and  forwards  the  origi- 


380  BOOKKEEPING  AND  ACCOUNTING 

nal  to  the  buyer,  who  cannot  secure  the  goods  shipped  without  sur- 
rendering the  original  to  the  carrier.  Frequently,  the  seller  refuses  to 
part  with  the  bill  of  lading  until  the  buyer  has  paid  for  the  goods. 
The  methods  of  effecting  collection  prior  to  the  dehvery  of  the  bill  of 
lading  is  a  subject  which  will  be  treated  of  separately  in  another  part 
of  this  chapter  (§  XII). 

3.  Delivery  by  Parcels  Post. — Packages  of  limited  weight  and  size, 
with  a  tendency  to  increase  both  Umits,  may  be  shipped  all  over  the 
country  and  to  foreign  lands  through  the  Post  Office.  Certain  goods 
are  excluded,  but  most  articles  of  merchandise  and  farm  produce  are 
accepted  by  the  government.  Charges  may  be  prepaid  by  affixing 
stamps  as  in  the  case  of  letters.  To  insure  safe  delivery,  and  to  be 
reimbursed  in  case  of  failure  to  deUver  or  other  loss,  such  packages 
may  be  insured  upon  the  payment  of  stipulated  fees.  This  process  is 
equivalent  to  registering  ordinary  mail. 

4.  Delivery  by  Seller. — When  parcels  are  delivered  by  one's  own 
delivery  system,  receipts  are  often  taken  from  the  customers  to  show 
that  the  goods  have  actually  reached  their  proper  destination.  Some 
of  the  large  department  stores,  however,  do  not  obtain  such  receipts, 
because  of  the  time  which  is  saved  by  dispensing  with  them.  Experi- 
ence shows  that  the  loss  resulting  from  claims  for  nondelivery  is  incon- 
siderable in  comparison  to  the  saving  effected.  The  receipt,  when 
executed,  is  in  a  so-called  receipt  book,  frequently  of  the  following 
form: 


New  York, 
Received  from...  Y^.Printing  Com^^^^          

Two  (2)  packages 

May  2, 

19— 

A.  Ryan 

per_ „ _ 

VIII.  Pay  Rolls. — The  student  who  expects  to  enter  the  business 
world  must  learn  how  to  make  up  pay  rolls.  Pay  roll  is  the  business 
term  for  the  amount  of  weekly  wages  or  salary,  as  well  as  for  the  Ust 
of  employees,  together  with  other  details  connected  with  the  amount 
of  wages  or  salaries  to  which  they  are  entitled.  In  order  to  ascertain 
the  amount  due  to  employees  each  period,  usually  each  week,  it  is  cus- 
tomary to  record  the  "  time  "  which  the  employees  have  spent  on  behalf 
of  the  concern,  and  for  which  they  are  entitled  to  payment.    The  record 


BUSINESS  PRACTICE  AND  CUSTOMS 


381 


of  such  services  rendered  is  entered  in  a  time  book  or  on  a  time  card. 
The  time  book  consists  of  the  names  of  the  individual  employees,  some- 
times accompanied  by  the  nmnbers  which  have  been  assigned  to  such 
employees,  as  well  as  by  the  title  of  the  position  which  each  fills  respec- 
tively, so  arranged  that  the  amount  of  time  spent  each  day  may  be  listed 
in  appropriate  columns  opposite  the  name  of  each  employee.  Where 
time  cards  are  employed  as  a  substitute  for  time  books,  the  time  of 
arrival  as  well  as  the  time  of  leaving  of  the  employee  is  punched  or 
stamped  upon  the  card  by  various  mechanical  clock  devices.  The 
pay  roll  book  frequently  consists  of  a  combined  time  book  and  a  pay 
book.  The  following  form  is  employed  by  many  concerns  where  the 
number  of  employees  is  not  large: 


Pay  Roll  Week  Ending  May  16,  19—. 

No. 

M. 

T. 

w. 

T. 

F. 

s. 

Total  Hours. 

Per  Hour. 

Amount. 

1 

W.  Benson 

9 

9 

9 

8 

9 

8 

52 

50c. 

26 

00 

2 

D.  Shutkind 

9 

8 

9 

9 

9 

9 

53 

50c. 

26 

50 

3 

G.  Jacobs 

8 

- 

- 

9 

9 

Sh 

34i 

45c. 

15 

53 

5 

S.  Begam 

9 

9 

9 

9 

9 

Sh 

531 

50c. 

26 

75 

6 

F.  Vincent 

9 

8 

8 

8 

81 

9 

50f 

20c. 

10 

15 

7 

L.  Heinrich 

9 

9 

8 

9 

9 

8 

52 

15c. 

7 

80 

9 

B.  Pearlman 

8^ 

9 

9 

9 

9 

9 

53i 

75c. 

40 

13 

When  the  money  to  which  each  employee  is  entitled  has  been 
ascertained,  it  is  frequently  necessary  to  make  out  pay-roll  envelopes. 
Such  envelopes  bear  the  name  and  nmnber  of  the  employee,  together 
with  the  amount  of  money  inclosed  in  the  envelope.  Sometimes 
the  time  spent  by  the  employee  is  also  placed  upon  the  envelope.  A 
form  of  such  pay-roll  envelope  follows: 


In  order  to  facilitate  the  paying  of  employees,  it  is  well  to  obtain 
from  the  bank  the  proper  denominations  of  currency  and  bills  required. 
For  the  pay  roll  shown  in  the  pay-roll  book  above,  the  following  analysis 


382 


BOOKKEEPING  AND  ACCOUNTING 


sheet  gives  the  desired  information  as  to  the  kinds  of  money  best  suited 
to  pay  off  most  efficiently: 


No. 

Amount. 

$10. 

$5. 

$2. 

$1. 

H. 

Q. 

D. 

N. 

P. 

1 

26 

00 

2 

1 

1 

2 

26 

50 

2 

1 

1 

1 

3 

15 

53 

1 

1 

1 

3 

5 

26 

75 

2 

1 

1 

1 

1 

6 

10 

15 

1 

1 

1 

7 

7 

80 

1 

1 

1 

1 

1 

9 

40 

13 

4 

1 

3 

Comments. — a.  Employee  No.  1,  Mr.  W.  Benson,  earned  $26.00 
during  the  week.  To  pay  him  in  the  least  number  of  pieces  of  money 
would  require  a  twenty-dollar  bill,  a  five-dollar  bill  and  a  one-dollar 
bill,  but  as  it  is  not  convenient  for  many  workmen  to  handle  bills  of 
large  denominations,  SIO.OO  is  usually  the  largest  bill  employed. 

b.  Note  that  employee  No.  2,  whose  pay  for  the  week  amounts  to 
$26.50,  should  receive  two  ten-dollar  bills,  one  five-dollar  bill,  one  one- 
dollar  bill,  and  a  half-dollar  piece. 

c.  The  Currency  Memorandum  page  383,  is  self-explanatory. 

d.  It  is  not  unusual  for  an  error  to  occur  in  filling  the  pay-roll 
envelopes.  Such  an  error  is  disclosed  when  we  come  toward  the  last  few 
envelopes  to  be  filled,  when  it  may  be  found,  for  example,  that  instead 
of  having  a  five-dollar  bill  required  for  a  certain  envelope,  an  extra 
two-dollar  bill  is  left  over.  The  conclusion  is  that  in  some  envelope, 
already  handled,  a  five-dollar  bill  was  placed  instead  of  a  two-dollar 
bill,  and  experience  shows  that  such  a  conclusion  is  usually  warranted. 
The  process  then  consists  of  opening  all  envelopes  which  were  to  con- 
tain two-dollar  bills  in  order  to  ascertain  whether  or  not  a  five-dollar 
bill  had  been  substituted.  If  this  test  does  not  disclose  the  error,  on 
the  assumption  that  the  money  was  counted  and  properly  checked  in 
the  beginning,  all  the  other  envelopes  must  be  inspected. 

IX.  Bank  Accounts. — ^A  recent  investigation  showed  that  in  whole- 
sale business  over  99%  of  all  transactions  were  settled  by  checks. 
Though  the  percentage  of  check  settlements  in  retail  business  is  much 
less,  nevertheless  the  volume  is  very  considerable.  No  one  can  hope 
to  make  much  headway  in  a  study  of  business,  without  becoming 
thoroughly  famiUar  with  the  services  rendered  by  banks.     The  banks 


BUSINESS  PRACTICE  AND  CUSTOMS 


383 


New  Netherland  Bank 

Of  New  York 
CUUBENCY   MEMORANDUM 


Depositor L 


Riiii;— inn'» 

.«;ft'« 

2n»« 

in'« 

/X- 

/2-C? 

«;•« 

.r 

ou 

/ 

Z- 

V. 

.^ 

^ 

Silver  Coin :  —  Hfllvet 

//• 

%- 

Qiiartcr* 

2- 

j'i> 

Dim^ff 

X 

2-0 

NiVWi. 

2- 

/^ 

C^nt. 

6 

(^^ 

OnH  rioin:    .    

Toul. 

/^7- 

r6 

which  we  have  in  mind  are  not  savings  institutions,  but  commercial  and 
business  banks.     The  principal  functions  of  such  banks  are  fourfold: 

(1)  To  act  as  a  safe  depository  for  funds; 

(2)  to  pay  out  such  funds  upon  proper  requisitions  in  the  form  of 
checks; 

(3)  to  lend  money  to  depositors  or  customers; 

(4)  to  act  as  check,  note  and  draft  collection  agent  for  customers. 


384 


BOOKKEEPING  AND  ACCOUNTING 


Other  functions,  of  course,  are  performed  by  banks,  but  in  this 
connection  the  four  outlined  above  will  be  sufficient  for  immediate  atten- 
tion. 

The  initial  relationship  between  the  bank  and  a  customer  is  estab- 
lished by  what  is  technically  known  as  ''  opening  an  account."  This 
consists  of  a  visit  to  the  bank  by  the  customer,  who  introduces  himself 
or  has  himself  introduced  to  an  official  of  the  bank,  frequently  the  presi- 
dent or  the  cashier,  and  the  making  of  the  first  deposit.  The  deposit 
is  entered  upon  a  so-called  deposit  sUp,  page  385,  which  accompanies 
the  money  or  checks  deposited,  and  for  which  a  receipt  is  obtained  in 
the  form  of  an  entry  in  a  pass  book  illustrated  below.  '  The  customer 
leaves  with  the  bank  his  signature,  together  with  such  other  information 
as  each  individual  bank  may  see  fit  to  require,  and  before  leaving  the 
bank  he  receives  a  check  book  which  is  to  furnish  him  the  means  whereby 
he  can  withdraw  such  sums  as  he  wishes,  up  to  the  Hmit  of  his  deposit. 

The  deposit  sHp,  on  the  assumption  that  the  first  deposit  consisted 
of  $200.00  in  currency,  and  three  checks  of  $112.00,  $310.40,  and 
$293.27,  respectively,  appears  as  shown  on  page  385. 

The  bank  pass  book  page  would  appear  as  follows: 


19— 


DEPOSITS  MADE  FOR 

ACCOUNT  OF 

T.  Brown 


Feb. 


10 


R 


915    67 


The  pass  book,  as  we  have  already  learned,  serves  as  a  receipt  from 
the  bank  to  the  customer.  This  book  is  taken  to  the  bank  whenever 
a  deposit  is  made  and  the  amount  of  each  deposit  is  entered.  At  the 
same  time,  a  corresponding  memorandum,  frequently  a  duplicate  of  the 
deposit  slip,  is  entered  in  the  check  book,  so  that  when  the  amounts 
of  the  withdrawals,  as  shown  by  the  checks,  are  ascertained,  the  bank 
balance  will  always  be  available.    To  take  a  concrete  illustration,  let 


BUSINESS  PRACTICE  AND  CUSTOMS 


New^  Netherland  Bank 


OP     NEW    YORK. 

DEPOSITED    BY 


^:2^:^'^^?:^:^^^f:a^i:^ 


NewYqrk        \^^ 


/^,  /£?  — 


^^ 


LIST    EACH   CHECK    SEPARATELY. 
PLACE  BAND  AROUND  BILLS;  MARK  NAME  AND  AMOUNT  THEREON. 


ENDORSEMENT    OF    DEPOSITORS   REQUIRED     ON    ALL    CHECKS. 


BILLS 


GOLD_ 
SILVER- 
CHECKS. 


DOLLARS 


/f6 
kJ/C? 


f/^ 


CENTS 


7} 


385 


386 


BOOKKEEPING  AND  ACCOUNTING 


us  assume  that  two  additional  deposits  were  made  besides  the   initial 
one  herein  referred  to,  and  that  seven  checks  were  drawn. 

The  check  book,  after  the  checks  had  been  removed,  would  appear 
as  follows: 


February  10.     Deposit 
Cash 

Brown  &  Co.,  Ck. 
T.  Smith,  Ck. 
F.  L.  Long,  Ck. 


915.67 


200.00 
112.00 
310.40 
293.27 


351. 


564.67 


Feb.  11 

Jones  &  Co. 
Inv.  2/6 
Less  2% 


No.  1 
19— 


$200 
4 


Feb.  11 


No.  2 
19— 


John  Smith 

Fur.  and  Fixtures. 
1  desk,  $50 

6  chairs  @  $5     30 


No.  3 
Feb.  13  19— 


Fuller  Realty  Co. 
Feb.  rent 


Comments. — 1.  Note  that  the  checks  are  numbered  consecutively. 

2.  The  amount  carried  out  to  the  money  column  on  each  stub 
corresponds  to  the  amount  of  the  check. 

3.  Details  of  each  check  are  recapitulated  on  the  corresponding 


BUSINESS  PRACTICE  AND  CUSTOMS 


387 


Feb.  14.    Dep. 
Frank  Smith 

Cash 
John  Jones 

Cash 
Robt.  Stem 

Check 


Feb.  15.  Dep. 
T.  James 

Cash 
R.  Turner 

Ck. 


564.67 

50 
25.50 

75  150.50 


715.17 


36.17 
100  136.17 


851.34 


217 


634.34 


No.  4 
Feb.  14  19— 


Edison  Electric  Light  Co. 
Deposit 


Feb.  14 

Allen  Bros. 
Inv.  2/8 
Less  2% 


No.  5 
19— 


$150 
3 


Feb. 15 
T.  Brown 

Private  a/c 


No.  6 


19— 


20 


147 


50 

217 


634.84 

Feb.  16 

No.  7 
19— 

56.40 

Bearer 
Week's  pay  roll 

56 

577.94 

40 

stub.  Thus,  check  No.  1,  invoice  of  Jones  &  Co.,  was  dated  February 
6,  and  amounted  to  $200.00,  but  as  it  was  paid  within  10  days,  2% 
was  deducted,  making  the  amount  of  the  remittance,  $196.00. 


388 


BOOKKEEPING  AND  ACCOUNTING 


4.  The  total  of  the  three  checks  on  the  first  page  of  the  check  book 
amounts  to  $351.00,  and  this  amount  is  deducted  from  the  deposit 
previously  made,  so  that  the  balance,  $564.67,  is  carried  forward  to 
the  second  page  of  the  check  book. 

5.  Note  that  each  deposit  is  a  summary  of  the  corresponding  de- 
posit sHp.  The  amount  of  the  deposit  is  added  to  the  previous  bal- 
ance.    The  old  balance  is  carried  forward  from  page  to  page. 

6.  The  last  check  shown  is  No.  7  for  $56.40.  If  it  were  required 
to  find  the  balance  in  the  bank  at  this  point,  $56.40  might  be  deducted 
mentally  from  the  previous  balance,  $634.34,  or  it  might  be  deducted 
as  shown  in  the  illustration  above. 

Drawing  Checks. — In  drawing  checks,  certain  precautions  must  be 
observed.  The  stub  of  the  check  must  be  made  out  first  so  as  to  avoid 
the  possibility  of  writing  a  check,  removing  it  from  the  check  book  and 
faihng  to  make  a  note  on  the  stub  as  to  the  amount.  Such  lapses 
have  sometimes  caused  grave  inconvenience  due  to  the  fact  that  bank 
balances  were  consequently  "  overdrawn."  By  overdrawing  a  bank 
balance  is  meant  the  writing  of  checks  for  greater  amounts  than  is 
warranted  by  the  balance  in  the  bank.  After  the  stub  has  been  filled 
out  properly,  the  check  should  then  be  written.  It  is  necessary  that  the 
amount  should  be  so  written  as  to  avoid  the  possibihty  of  "  raising  "  it. 

Many  business  houses  employ  perforating  devices  so  as  to  make 
quite  impossible  the  raising  of  amounts.  One  such  device  consists  of 
perforating  the  amount  by  means  of  special  machines.  Another  method 
is  to  stamp  across  the  face  of  the  check:    "  Good  for  not  over  $ ." 

Losses  resulting  from  the  payment  of  raised  checks  are  borne  by 
the  bank  which  honors  such  checks,  unless  the  maker  of  the  check  was 
really  negligent  in  not  taking  common  precautions  to  prevent  raising. 
Hence  the  importance  of  drawing  checks  carefully,  as  illustrated  below: 


For  example,  if  a  check  for  $3.00  were  written  as  follows: 


No.    671 

New  York.  Feb. 

15,     19- 

COMMERCIAL  BANK 

Pay  to  the  order  of ^ 
Three 

Frank  Brown 

$3 
Dollars 

John  Jones 

1 

BUSINESS  PRACTICE  AND  CUSTOMS 
It  could  easily  be  raised  to  $300.00  or  $3,000.00,  as  follows:. 


389 


No.    671                         New  York.  Feb.  15,     19— 

COMMERCIAL  BANK 
Pay  to  the  order  of    Frank  Brown          $3000^ 
Three  Thousand .^.^.^^.,^,^,x.....^,^.^,^,^^Dollfl^^ 

John  Jones 

To  prevent  such  alterations,  the  check  should  be  written  as  follows: 


No.    671  New  York.  Feb.  15,     19— 

COMMERCIAL  BANK 

Pay  to  the  order  of    Frank  Brown $?„^..„. 

2:.  Dollars 
John  Jones 


Three 


Balancing  the  Check  Booh. — We  have  already  alluded  to  the  fact  that 
unless  the  stub  of  the  check  is  filled  out  properly  before  the  check  itself 
is  removed,  there  is  great  danger  that  no  record  will  be  retained  of  the 
check  issued,  and,  secondly,  that  the  bank  balance  may  be  overdrawn. 
In  order  to  avoid  overdrawing,  as  well  as  at  all  times  to  have  ready 
positive  knowledge  regarding  the  amount  of  money  in  the  bank,  the 
check  book  should  be  constantly  balanced.  The  balancing  has  already 
been  described  on  pages  386-388. 

Balancing  the  Pass  Book. — Once  a  month,  as  a  usual  procedure, 
business  banks  furnish  each  depositor  with  the  amount  of  his  balance. 
Until  recently,  in  order  to  obtain  this  balance  from  the  bank,  the  depos- 
itor's pass  book  was  left  there  to  be  "  written  up.''  The  writing  up 
consisted  of  an  addition  of  all  the  deposits  which  had  been  previously 
entered  upon  the  left-hand  page  of  the  pass  book,  together  with  an 
addition  of  the  total  amount  of  checks  drawn  against  these  deposits, 


390  BOOKKEEPING  AND  ACCOUNTING 

shown  by  the  canceled  "  vouchers  "  returned,  resulting  in  the  balance 
at  the  bank.  Instead  of  having  the  bank  pass  book  written  up,  modern 
banks  continue  to  employ  the  pass  book  as  a  receipt  for  deposits,  and 
return  to  each  depositor  the  amount  of  canceled  vouchers  once  a  month, 
without  having  the  book  left  at  the  bank.  The  vouchers  are  returned 
in  an  envelope,  such  as  is  shown  on  the  opposite  page. 

Comments. — 1.  $600.00  is  the  balance  which  existed  Feb.  28,  19 — . 

2.  The  three  items,  $142.50,  $50.00  and  $287.10,  represent  deposits 
also  shown  in  the  pass  book. 

3.  The  "  list  enclosed  "  is  typed  on  an  adding  machine,  and  amounts 
to  $400.00: 

100.00 

30.75 

15.00 

3.70 

2.00 

7.20 

198.00 

43.35 


400.00 


The  envelope  illustrated  above  contains  the  canceled  vouchers. 
Each  voucher  is  a  check  issued  by  the  customer,  and  finally  paid  by  the 
bank.  It  is  necessary  to  ascertain  whether  the  bank's  balance  is  correct 
or  not.  The  process  of  determining  this  fact  is  known  as  reconciling 
the  cash  or  bank  balance. 

Let  us  assume  that  the  check  book  shows  a  balance  of  $500.00  in 
the  bank.  This  balance  will  probably  be  less  than  that  shown  by  the 
bank,  because  of  the  fact  that  certain  checks  issued  have  probably 
not  yet  been  presented  to  the  bank  for  payment.  The  proof  of  the 
correctness  of  the  bank's  balance,  is  shown  by  the  following: 

RECONCILIATION  STATEMENT 

April  1,  19— 
Balance  as  per  check  book  $500.00 

Balance  as  per  bank  pass  book       $679 .  60 

Less  outstanding  checks: 

No.  19  $50.25 

No.  22   35.75 

No.  23   93.60 

Total  outstanding  checks  179.60  $500.00 


T,  BROWH 

12  Pront  St,,  City 

IN  ACCOUNT  WITH 

New  Netberland  Bank  of  New  York, 

FOR  THE  MONTH  OF  MARCH.    19 

Day 

Description 

Credit 

Day 

Description 

Credit 

Balance 

C^a 

.^ 

/fA2. 

.r<9 

. 

^ 

yfO 

^f/- 

:i^r7 

/^? 

^.M^ 

/ 

' 

■ 

TOTAL  CREDITS 

A 

^7f 

^^ 

Checks  as  per  list  enclosed 

"^ 

Total  charges  deducted 

AC€>tP 

April    1>19    •      BALANCE 

cyf 

^^ 

Please  examine  account  and  report  any  errore,  as  this  statement  will  be 
«>n8idered  correct  nnless  we  are  notified  to  the  cpntrary  within  one  month. 
PLEASE  NOTUb'X  OP  ANY  PERMANENT  CHANGE  IN  ADDRESS. 

Safe  Deposit  Boxes  $5.00  per  Tear  and  Upward. 

391 


392 


BOOKKEEPING  AND  ACCOUNTING 


It  will  be  observed  that  when  we  deduct  from  the  bank's  balance 
the  amount  of  the  checks  drawn,  but  not  yet  paid  by  the  bank,  the  bal- 
ance is  the  same  as  that  shown  by  the  check  book. 

X.  Petty  Cash. — ^A  recent  study  disclosed  the  fact  that  almost  one 
hundred  per  cent  of  all  the  wholesale  transactions  are  settled  by  check; 
nevertheless  the  business  man  continues  to  employ  currency  in  the  pay- 
ment of  small  items.  Some  transactions  can  be  settled  by  cash  only, 
as  for  example,  the  purchase  of  postage  stamps,  the  payment  of  car- 
fare, etc.  In  order  to  provide  for  the  proper  recording  of  such  small 
or  petty  transactions,  the  Petty  Cash  Book  is  employed. 

An  initial  check  is  drawn  for  the  amount  decided  upon  as  sufficient 
for  petty  cash  purposes,  and  the  check  is  cashed  at  the  bank.  The 
proceeds  are  placed  in  the  so-called  petty  cash  drawer.  The  entry 
which  results  from  this  transaction  is  as  follows: 

Petty  Cash  $ 

Cash  $ 


This  entry  is  then  posted,  resulting  in  a  debit  to  the  Petty  Cash 
account  and  a  credit  to  the  Cash  account.  Corresponding  to  the  debit 
posted,  an  entry  is  made  in  the  receipt  column  of  the  Petty  Cash  Book. 

The  cashier  in  charge  of  petty  cash  should  make  no  disbursements 
imless  a  receipt  or  voucher  is  given  him.  Frequently  such  vouchers 
consist  of  rough  memorandum  sHps,  but  in  well  regulated  offices  a 
form  such  as  that  which  follows  is  employed: 


Date 

Voucher  for  $ 

Purpose 

Signed 

Approved Entered , 


No 


Observe  that  the  purpose  for  which  the  disbursement  is  made 
must  be  shown  and  that  it  must  be  approved  or  0.  KM  by  someone 
in  authority.  When  the  amount  of  the  voucher  has  been  carried  to  the 
disbursement  column  of  the  Petty  Cash  Book,  the  fact  is  indicated  by 
writing  the  page  of  the  Petty  Cash  Book  in  the  space,  on  the  voucher, 
after  "  entered.*' 


BUSINESS  PRACTICE  AND  CUSTOMS 


893 


The  following  form  illustrates  the  manner  of  "  keeping  "  a  simple 
Petty  Cash  Book: 

PETTY  CASH  BOOK 


Date 

Account 

Explanation 

Receipts 

DisbursemeatB 

19— 

Sept. 

1 

Cash 

Ck.  No.  8 

25 

00 

3 

Postage 
Expressage 

200  Stamps 
Smith's  Invoice 

4 

00 
65 

6 

Salary- 

Bailey;  3  days. 

7 

50 

7 

Stationery 

1  doz.  Pencils 

20 

9 

Stationery 

Carbon  Paper  &  Rib. 

2 

85 

Salary 

Franklin,  1  day 

2 

25 

Postage 

50  Postals 

50 

The  balance  of  petty  cash  on  September  9,  according  to  the  Petty 
Cash  Book  just  shown,  is  $7.05.  It  will  now  be  necessary  to  replenish 
the  cash  drawer.  One  method  is  to  draw  a  check  for  about  $10.00  or 
$20.00,  but  the  best  method  is  to  make  a  voucher  for  the  disbursements 
already  made,  recapitulated  under  the  headings  of  the  accounts  to  which 
the  expenditures  are  to  be  charged,  and  then  draw  a  check  for  the  total 
expenditure  to  date.  When  the  amoimt  of  this  check  is  placed  in  the 
cash  drawer  it  will  be  found  that  there  will  be  exactly  $25.00  there. 
This  method  of  reimbursing  the  cash  drawer  for  exactly  the  amount 
of  expenditure  since  the  day  when  the  previous  check  was  drawn  is 
known  as  the  Imprest  System. 

The  voucher,  as  a  result  of  which  a  Petty  Cash  check  for  $17.95 
will  be  issued,  is  as  follows: 

PETTY  CASHIER'S  VOUCHER 


For  $17.95 

From  Sept.  1,  19—    to    Sept.  9,  19- 


Postage 
Salary 
Stationery 
Expressage 
Miscellaneous 
Total 


$4.50 

9.75 

3.05 

.65 

$17.95 


Ck.  No.... 
For  $17.95 


O.K. 


394 


BOOKKEEPING  AND  ACCOUNTING 


If  the  Petty  Cash  Book  shown  on  page  393  is  employed,  the  expenses 
for  a  given  period  must  be  summarized  or  recapitulated  whenever 
more  funds  are  required.  In  order  to  facilitate  this  process  of  re- 
capitulating, many  bookkeepers  employ  a  specially  ruled  Petty  Cash 
Book.  The  following  illustration  should  make  clear  the  advantages  of 
such  a  special  Petty  Cash  Book: 


PETTY  CASH  BOOK 


Imprest  Fund  $25.00. 

Disbursements 

Voucher 

Date  10— 

No. 

Postage 

Salary 

Stationery 

Expessage 

Mis- 
cellaneous 

Total 

1 

Sept. 

3 

4 

00 

4 

00 

2 

65 

65 

3 

6 

7 

50 

7 

50 

4 

7 

20 

20 

5 

9 

2 

85 

2 

85 

6 

2 

25 

2 

25 

7 

50 

50 

It  should  be  observed  that  the  Petty  Cash  Book  just  illustrated 
provides  no  column  for  receipts.  Such  a  column  is  unnecessary  because 
the  petty  cash  receipts,  after  the  initial  amoimt  given  to  the  clerk  in 
charge  of  petty  cash,  is  in  repayment  of  disbursements  already  made. 
Accordingly,  when  disbursements  are  returned  to  the  cashier  in  charge 
of  petty  cash,  the  fund  is  brought  up  to  its  original  status. 

It  should  also  be  noted  that  the  entry  for  the  check  given  to  replen- 
ish the  cash  drawer  is  made  in  the  Journal,  or  other  book  of  original 
entry,  to  correspond  to  the  cashier's  voucher,  as  follows: 


Postage 

$4.50 

Salary 

9.75 

Stationery 

3.05 

Expressage 

.65 

Cash 

$17.95 

XI.  Bill  Books. — The  student  learned  in  Part  I,  Section  12,  that  it 
was  customary  to  receive  notes  as  well  as  to  give  them.  As  a  matter 
of  business  practice,  it  is  necessary  that  the  student  know  several 
things  regarding  these  notes.    He  must  know  how  to  draw  such  a  note, 


BUSINESS  PRACTICE  AND  CUSTOMS  395 

and  he  must  be  familiar  with  some  of  the  fundamental  legal  principles 
affecting  promissory  notes.  Moreover,  it  is  necessary  that  he  know, 
besides,  what  entries  are  made  when  such  notes  are  given  or  received 
and  the  use  of  a  certain  memorandum  book  which  will  be  explained 
in  this  connection. 

(a)  Notes  Receivable. — If  Thomas  Smith,  to  whom  Frank  Brown 
had  sold  $865.00  worth  of  merchandise,  paid  by  means  of  a  note,  the 
promissory  note  might  appear  as  follows: 


$865  j$f 

One  month       after  datej_ 

the  order  of    Frank  Brown 

promise 

New  York, 

Mch. 

3,  ig- 

to  pay  to 

Eight  hundred  sixty-five  #  ^ 

— ^Dollars 

at  New  Scotia  Bank 

Value  received 
No.  3  Due  April  3 

Thomas  Smith 

Comments  on  the  above  note. — 1.  Thomas  Smith  is  technically 
known  as  the  maker  of  this  note. 

2.  Frank  Brown  is  called  the  payee,  the  person  to  whom  the  specified 
amount  is  to  be  paid. 

3.  The  face  of  the  note  is  its  amount,  namely  $865.00. 

4.  The  date  is  obvious  enough,  March  3,  19 — . 

5.  The  time  is  specified  as  one  month;  this  means  that  Thomas 
Smith  promises  to  pay  to  Frank  Brown  $865.00  one  month  after  the 
date  of  the  note,  or  on  April  3.  If  April  3  happens  to  fall  on  a  Sunday 
or  on  a  legal  hoUday,  the  date  of  maturity  is  advanced  to  the  next 
business  day. 

6.  The  law  requires  that  all  notes  of  this  sort  shall  be  signed  by  the 
person  or  concern  who  is  to  pay,  though  an  **  X  "  mark  is  accepted  under 
certain  circumstances.  The  amount  of  the  note  must  be  clearly  stated 
or  else  easily  ascertained;  it  must  be  for  a  smn  certain  in  money  only, 
and  must  be  paid  at  a  time  certain  to  arrive.  Smith  is  to  pay  this 
note  at  his  bank,  as  designated. 

The  law  here  briefly  summarized  is  not  sufficient  for  the  purposes  of 
those  who  expect  to  become  executives  in  the  business  world;  the 
Negotiable  Instruments  Law  should  be  thoroughly  studied  and  mastered. 


896 


BOOKKEEPING  AND  ACCOUNTING 


(6)  Notes  Payable. — Had  Brown  bought  these  goods  from  Smith, 
and  had  he  given  a  similar  note,  it  would  appear  as  follows: 


$865  ^  New  York,  March  3,  19— 

One  month   after  date  I  _promise  to 

pay  to  the  order  of  _  Thomas  S^^      

Eight  hundred  sixty-five  ^_j2'::rrr'^^^r'"t: Dollars 

at  New  Scotia  Bank 

Value  received 

No.  3  Due   April  3 

Frank  Brown 


Comments  are  not  necessary  in  reference  to  the  foregoing  note, 
as  practically  all  those  made  in  connection  with  the  first  are  equally 
apphcable  to  the  present  case. 

(c)  Bill  Books. — Notes  such  as  are  herein  described  may  be  received 
in  large  number  and  quite  frequently.  In  order  to  keep  before  us  a 
constant  reminder  of  when  notes  fall  due,  so  as  to  be  ready  to  demand 
payment  on  notes  receivable,  and  to  be  prepared  to  meet  our  obhga- 
tions  on  notes  payable,  a  record  has  been  devised  by  bookkeepers, 
with  which  it  is  necessary  that  the  business  man  familiarize  himself. 

The  illustration  on  page  397  contains  three  entries  in  the  so-called 
Bills  Receivable  Book. 

Comments. — (a)  The  first  entry  shows  that  we  (Klein  &  Student) 
received  a  note  from  Albert  Ring,  on  March  1,  19 — ,  on  account,  pay- 
able at  the  Commercial  Bank;  that  the  note  was  dated  February  29, 
19 — ,  payable  in  30  days  and  due  March  30,  19 — ,  and  that  it  was 
discounted  at  the  New  Netherland  Bank,  the  proceeds  being  $995.83. 

(b)  The  second  entry  shows  that  we  (Klein  &  Student)  received  a 
note  from  Frank  Reid,  on  March  10,  19 — ,  in  full  of  account;  that  the 
note  was  dated  March  8,  payable  in  three  months  and  due  June  8, 19 — . 
As  the  "  Where  Payable  "  column  indicates,  we  are  to  collect  at  the 
oflBice  of  Mr.  Reid,  whose  address  is  known  to  us. 

(c)  The  third  entry  shows  that  the  amoimt  is  $1,200.00,  with  interest 
at  6%,  so  that  when  the  note  is  due  on  July  14,  John  Colhns  will  pay  us 
not  $1,200.00,  but  this  amount  plus  $24.00  interest,  making  a  total  of 
$1,224.00. 

Now  consider  the  entries  in  the  Bills  or  Notes  Payable  Book 
shown  on  page  398. 


1 

Q 

ao 
.id 

.2 

Q 

0) 

1         1         1         1         1         1         1         1 

1              1              1              1           1 

1       1 

s 

S§                     1       1       1       1       1       1       1       1       1       1       1       1      1 

i             III 

1       1       1       1       1       1              II 

n 

1 

1 

o 

1 

SSSIIIIIIIII 

-|      1 

1   ^    1 

^1 

i    1    i 

§      5      3 

CO          to          t^ 

1 

Time 
to 

Matur- 
ity 

«   i   i 

o      eo      ^ 

1 
5 

<^ 

O           00           ^ 

1 

1  1  1 

1              1              1 
1              1              1 

>^ 

^  i  ^  1 

1 
1 

^1 

i    1    1 
1   s   S 

1-2 

S   5   5 

ll 

a 

1    i    i 
1    1    1 

o     o     o 

Drawee 

or 
Maker 

.1  1  1 

S   5   3 

o       a       a 
^      fo      ^ 

\ 

Drawer 
or 

Indorser 

i 

^      2      12        1        1        1        1 

1              i              1              1              1 

2:^    s    s     1     1     1     ' 

c 

^          (N           CO 

/ 

397 


M 

fl 

^ 

» 

n 

a 

^ 

rt 

TJ 

,              1 

^ 

CIh 

1              ' 

1 

m 

(N 

1             1             1             1             1             1             1             1             1             1             1          1 

E. 

4> 

C-5 

1             1             1             1             1             1             1             1             1             1             1          1 

.2 
Q 

a 

i 

*i 

o 

1             1             1             1             1             1             1             1             1             1             1          1 

3 

o 

o 

<J 

►art 

CO 

;3 

1 

8 

8 

8      1       i       1       1       1       1       1       1       1       1       1     1 

Q 

o 

o 

,              1 

lO 

o 

»o 

< 

1-1 

rH 

S  2 

i 

1 

^ 

-fl  S. 

M 

'* 

»o 

^Q 

(N 

CO 

IC 

Tj< 

Time 
to 

Matur- 
ity 

1 

1 

>> 

O 

Ol 

CO 

^ 

l> 

N 

lO 

1 

Q 

^^ 

^• 

^• 

(3 

c3 

o 

^ 

S 

% 

r^ 

i 

i 

k 

2  Is 

« 

12: 

Js 

§   d 

=3 

"c.  -2 

rt 

c9 

X  -^ 

a 

fl 

d 

W 

o 

O 

o   S 

1 

g 

!l 

rs 

o 

a 

►^ 

1 

o 

m 

tf 

Isl 

> 

t> 

> 

% 

1 

v 

Q       S 

3 

o 

3 
O 

o 

1 

1   »-   o 

g   o  ^ 

Q      ►S 

"^          1           1           1           1           1           1           1           1           1           1          1        1 

g 

•-H                     1                       1                       1                       1                       1                       1                       1                       1                       1                       1                       1                  1 

u 

1     cd 

eJ 

Si 

r^ 

<; 

O 

^ 

c        i         1         1         1         1         1         1         1         1         i         1       1 

s 

^ 

(N 

M 

N 

1 

1 

1 

1 

398 


BUSINESS  PRACTICE  AND  CUSTOMS 


399 


Comments. — (a)  The  first  was  a  15-day  note  which  was  paid  by 
the  bank  and  charged  to  our  account  (Klein  &  Student),  which  means 
that  the  note  was  presented  for  payment  and  paid  at  our  bank,  the 
amount  being  deducted  from  our  balance  at  the  bank.  (Instead  of 
having  a  note  so  charged  to  our  account,  it  is  sometimes  customary  to 
draw  a  check  with  which  to  redeem  it.) 

(6)  The  second  was  a  note  with  interest  at  6%  for  two  months  and, 
as  indicated,  is  due  May  12.  The  due  colmnn  of  the  Bill  book  is 
frequently  of  the  following  form: 


WHEN  DUE 

Jan. 

Feb. 

Mch. 

Apr. 

May 

June 

July 

Aug. 

Sept. 

Oct. 

Nov. 

Dec. 

22 

14 



15 

i 

1 

(c)  The  third  entry  requires  no  comment. 

Special  Comments. — Notes  such  as  described  in  the  bill  books,  when 
discounted  at  the  bank,  are  entered  in  the  bank  pass  book,  just  as  a 
deposit  is  entered.  The  usual  difference  is  this:  that  whereas  a  deposit 
is  entered  in  black  ink,  the  proceeds  of  a  discounted  note  are  very 
frequently  entered  in  red,  though  the  practice  of  employing  different 
colored  inks  is  rapidly  becoming  obsolete. 

Xn.  Drafts. — ^After  goods  are  sold  and  shipped,  it  sometimes 
occurs  that  customers  fail  to  pay  according  to  the  terms  of  sale.  In 
such  cases,  the  matter  of  delinquency  is  brought  to  their  attention  either 
by  telephone,  by  correspondence  or  by  personal  interview.  If  such 
action  does  not  result  in  payment,  other  steps  are  in  order.  One  such 
step  consists  of  '^  drawing "  on  the  customer.  Drawing  consists  of 
writing  or  drawing  a  "  sight  draft  "  on  the  customer,  in  favor  either  of 
ourselves  or  of  our  bank. 

Assume  that  Thomas  Brown  of  Boston,  Mass.,  to  whom  we  had 
sold  $360.00  worth  of  merchandise,  had  failed  to  pay  us  when  due,  and 
had  continued  to  ignore  our  letters  requesting  payment.  If  now  we 
decided  to  draw  on  him,  the  sight  draft  would  appear  as  shown  on 
the  following  page: 


400 


BOOKKEEPii\(J   AND  ACCOUNTING 


No.  135 
$360^ 

At  sight,  pay  to  the  order  of  OURSELVES 

Three  hundred  sixty  -ruu 

for  value  received,  and  charge  to  the  account  of 


New  York,  October  18,  19— 


Dollars 


To  Thomas  Brown 
100  Milk  Street 
Boston,  Mass. 


Klein  &  Student 


The  above  draft  is  simply  a  formal  demand  on  Thomas  Brown  to 
pay  us,  or  to  anybody  to  whom  we  indorse  the  draft,  the  amount  stated 
in  the  paper.  This  paper  is  handed  to  our  bank  for  "  collection  "  and 
at  this  time  bears  the  following  indorsement: 


Pay  to  the  order  of 
New  Netherland  Bank 

Klein  &  Student 


The  New  Netherland  Bank  would  forward  the  draft,  properly  in- 
dorsed by  it,  to  another  bank  in  Boston,  called  its  correspondent, 
which  would  present  it  for  payment  to  Thomas  Brown.  If  Thomas 
Brown  paid  the  draft,  the  Boston  bank  would  return  to  the  New 
Netherland  Bank  the  proceeds  of  the  collection,  i.e.,  $360.00,  less  a  nomi- 
nal charge  for  the  services  rendered.  The  New  Netherland  Bank 
would  then  credit  our  bank  account  with  the  amount  of  the  net  proceeds, 
less  perhaps  an  additional  small  charge  for  the  service  rendered  by  the 
New  Netherland  Bank  to  us.  If  the  draft  were  not  paid  by  Thomas 
Brown,  it  would  be  returned  to  us,  but  the  procedure  then  involved 
need  not  be  discussed  in  the  present  connection. 

Business  men  have  come  to  believe  that  a  delinquent  customer 
will  not  be  likely  to  refuse  payment  on  a  draft  when  presented  by  a  bank, 
even  though  he  might  resist  almost  any  other  form  of  "  dunning." 
This  is  for  the  reason  that  most  business  men  are  zealous  of  their  credit 
standing,  and  they  feel  that  to  fail  to  honor  a  draft  is  a  serious  reflec- 
tion on  their  financial  abiHty.  Trade  associations,  mercantile  agencies 
and  lawyers  are  also  employed  as  agents  instead  of  banks,  to  effect  the 
collection  of  debts  by  means  of  such  sight  drafts,  but  the  procedure  is 


BUSINESS  PRACTICE  AND  CUSTOMS  401 

so  similar  to  that  described  in  connection  with  banks  that  the  matter 
need  detain  us  no  longer. 

It  is  not  customary  to  make  any  book  entries  when  drafts  of  this  sort 
are  issued.  Sometimes  a  memorandum  is  made  to  the  effect  that  a 
draft  has  been  handed  to  a  bank  or  collection  agency,  but  no  real  entry 
is  necessary  until  payment  has  been  received  by  us,  in  which  case  the 
receipt  of  the  payment  is  treated  exactly  in  the  same  way  as  is  the  receipt 
or  any  other  money  from  a  customer.  The  fees  charged  by  the  bank 
for  collection  are  usually  charged  to  Expense  account  or  to  Collection  and 
Exchange  account,  and  Cash  account  is  credited. 

There  is  at  least  one  other  use  to  which  sight  drafts  are  put  which 
should  be  brought  to  the  student's  attention.  When  a  common  car- 
rier issues  a  bill  of  lading  for  goods  intrusted  to  it  for  shipment,  such 
merchandise  will  not  be  delivered  by  the  railway  or  steamship  unless 
the  original  bill  of  lading  is  surrendered  by  the  consignee.  Should 
the  seller  wish  payment  for  his  shipment  before  it  is  delivered  to  the 
buyer,  a  very  simple  expedient  may  be  employed.  By  attaching  a 
sight  draft  to  the  bill  of  lading,  and  arranging  with  the  bank  for  the 
service,  the  bill  of  lading  will  not  be  given  to  the  consignee  until  he 
has  honored  the  draft.  Incidentally,  many  import  and  export  trans- 
actions are  handled  in  just  this  way, 


SUMMARY 

The  purpose  of  this  chapter  was  to  illustrate  the  simpler  business 
customs  and  usages  which  obtain  in  the  world  of  trade  and  commerce. 
The  point  was  emphasized  that,  in  actual  business,  the  bookkeeper, 
instead  of  recording  business  transactions  as  a  result  of  having  presented 
to  him  a  list  of  occurrences,  must  make  his  entries  on  the  basis  of 
various  papers  and  instruments  which  are  issued  and  received  by  his 
concern. 

In  connection  with  the  sale  of  goods,  the  student  learned  how  to  pre- 
pare and  handle  orders,  invoices,  monthly  statements,  remittance  blanks 
and  receipts.     He  also  learned  the  use  and  meaning  of  dating  and  terms. 

Various  simple  devices  for  filing  letters,  orders,  invoices  and  other 
papers  were  illustrated  and  explained. 

The  importance  of  checks,  together  with  the  manner  of  keeping  bank 
accounts,  was  made  the  subject  matter  of  an  important  division  of  this 
chapter.  The  shipping  of  goods  by  express,  freight  and  parcels  post 
was  discussed.    The  keeping  of  employees'  time,  together  with  the  cal- 


402  BOOKKEEPING  AND  ACCOUNTING 

culation  of  amounts  earned  and  the  ascertaining  of  the  denominations 
required  for  the  efficient  payment  of  employees  was  also  presented. 

Petty  Cash  and  the  use  of  notes  and  bill  books  concluded  the  dis- 
cussion of  this  section. 

Questions 

1.  Is  it  necessary  to  obtain  a  signed  order  from  customers  to  whom  sales  were 
made  by  a  salesman  on  the  road? 

2.  Explain  the  following  credit  terms: 

(fl)  2/10,  n/30 

(6)  Cash 

(c)  2/10— 60x 

3.  What  is  meant  by  a  receipted  bill? 

4.  Are  receipts  essential  when  payments  are  made  by  check? 

6.  In  what  respect  does  a  monthly  statement  differ  from  an  invoice? 

6.  An  experienced  business  executive  once  said  that  he  considered  filing 
one  of  the  most  important  duties  of  the  office  worker.  Try  to  show  that  the 
statement  is  true. 

7.  What  is  meant  by  an  express  receipt? 

8.  Explain  in  your  own  words  "  how  to  make  up  a  pay  roll." 

9.  What  is  the  object  of  ascertaining  denominations  required  for  pay  roll? 

10.  Explain  the  advantages  to  the  business  man  of  keeping  a  bank  account. 

11.  How  does  the  business  man  ascertain  his  daily  bank  balance? 

12.  What  precautions  should  be  taken  in  filling  in  the  amount  for  which 
a  check  is  drawn? 

13.  Describe  the  petty  cash  voucher. 

14.  What  is  the  relationship  between  the  petty  cash  book  and  the  ordinary 
cash  book? 

15.  Explain  the  process  of  "  recapitulating  petty  cash." 

Exercises 

In  the  following  exercises,  assume  that  you  are  employed  by  Horace  H.  Greeley, 
whose  office  is  at  200  Broadway,  New  York  City.  In  each  case,  rule  your  own 
forms  or  else  secure  blanks  suitable  for  the  various  exercises.  Mr.  Greeley  banks 
with  The  Exercise  National  Bank. 

1.  Our  salesman,  William  Lane,  "  booked  "  an  order  on  September  18,  19 — , 
from  Lowenfeld  &  Wright,  3600  Fulton  Street,  Brooklyn,  for  the  following  goods: 
10  bbls.  XXX  flour  @  $9.75  per  bbl. 
3  bbls.  Special  "  A  "  flour  @  $10.25  per  bbl. 
These  goods  are  to  be  delivered  at  once,  terms  2/10,  n/30.    Show  the  order  as 
it  should  appear  when  received  by  us. 


BUSINESS  PRACTICE  AND  CUSTOMS 


403 


2.  Our  salesman,  Arthur  Lang,  "  booked  "  an  order  on  September  25,  19 — , 
from  Miller  Bros.,  100  Greene  Street,  New  York  City,  for  the  following  goods: 

20  bbls.  ***  flour  @  $9.50  per  bbl. 

10  bbls.  "  AA  "  flour  @  $10.00  per  bbl. 
These  goods  are  to  be  delivered  at  once,  terms  2/10,  n/30.    Show  the  order  as 
it  should  appear  when  received  by  us. 

3.  Show  the  invoice  which  should  be  sent  to  Lowenfeld  &,  Wright  (Exercise 
1,  above),  assuming  that  the  goods  ordered  by  them  were  shipped  on  September 
20,  19—. 

4.  Show  the  invoice  which  should  be  sent  to  Miller  Bros.  (Exercise  2,  above), 
assuming  that  the  goods  ordered  by  them  were  shipped  on  September  27,  19 — . 

5.  Show  the  entry  on  our  books  resulting  from  Exercise  3,  above. 

6.  Show  the  entry  on  our  books  resulting  from  Exercise  4,  above. 

7.  Show  the  entry  on  the  books  of  Lowenfeld  &  Wright,  resulting  from 
Exercise  3,  above. 

8.  Show  the  entry  on  the  books  of  Miller  Bros,  resulting  from  Exercise  4, 
above. 

9.  On  September  30,  we  received  Lowenfeld  &  Wright's  check  for  $125.68, 
in  full  payment  of  their  invoice  (Exercise  1,  above).  Show  the  bill,  assuming 
that  the  receipt  of  the  money  was  indicated  on  the  invoice.  Also  show  the 
check,  assuming  that  Lowenfeld  &  Wright  bank  with  the  First  National  Bank 
of  Brooklyn. 

10.  On  October  6,  19—,  we  received  Miller  Bros.'  check  for  $284.20,  in  full 
payment  of  their  invoice  (Exercise  2,  above.)  Show  the  bill,  assuming  that  the 
receipt  of  the  money  was  indicated  on  the  invoice.  Also  show  the  check, 
assuming  that  Miller  Bros,  bank  with  the  Excelsior  National  Bank. 

11.  Show  the  entry  on  our  books  resulting  from  the  transaction  of  Exercise 

9,  above. 

12.  Show  the  entry  on  our  books  resulting  from  the  transaction  of  Exercise 

10,  above. 

13.  Show  the  entry  on  Lowenfeld  &  Wright's  books  resulting  from  the  trans- 
action of  Exercise  9,  above. 

14.  Show  the  entry  on  Miller  Bros.'  books  resulting  from  the  transaction  of 
Exercise  10,  above. 

15.  The  following  Ledger  account  appears  on  our  books: 

12  Decatur  St. 
Herbert  C.  Paine  Brooklyn,  N.  Y. 


19— 

Sept. 


3 
20 

28 


Mdse. 
Mdse. 
Mdse. 


450 

50 

875 

00 

345 

75| 

Prepare  a  monthly  statement  dated  September  30,  19 — 


404  BOOKKEEPING  AND  ACCOUNTING 

16.  The  following  Ledger  account  appears  in  our  books: 


12  Decatur 

St. 

Herbert  C.  Paine 

Brooklyn,  N.  Y. 

19— 

19— 

Sept. 

3 
20 

28 

Mdse. 
Mdse. 
Mdse. 

450 

875 
345 

50 
00 

75 

Oct. 

3 

Check 

1,000 

00 

Oct. 

15 

Mdse. 

600 

00 

Prepare  a  monthly  statement  dated  October  31,  19 — 
17,  The  following  Ledger  account  appears  in  our  books: 

John  Whitney 


1200  Broadway 
New  York  City 


19— 

19— 

Sept. 

18 

Mdse. 

550 

00 

Nov. 

25 

Check 

1,500 

00 

25 

Mdse. 

275 

00 

Dec. 

5 

Check 

1,000 

00 

Oct. 

15 

28 

Mdse. 
Mdse. 

1,050 
1,500 

00 
00 

20 

Note 

2,000 

00 

Nov. 

10 

Mdse. 

890 

00 

Dec. 

12 
18 

Mdse. 
Mdse. 

2,000 
875 

00 
00 

Prepare  a  monthly  statement  dated  December  31,  19 — .  (Do  not  forget 
that  it  is  the  custom  of  our  office  to  send  monthly  statements  to  each  customer 
on  the  last  business  day  of  each  month.) 

18.  Prepare  a  receipt  to  be  signed  by  one  of  our  workmen  who  was  discharged 
on  September  16,  and  to  whom  we  paid  his  wages  in  full  amounting  to  $9.65. 

19.  Prepare  a  receipt  to  be  signed  by  a  house  decorator  to  whom  we  paid 
$25.00  on  September  20,  on  account  of  his  contract  amounting  to  $150.00. 

20.  On  September  12,  19 — ,  we  sent  the  Minneapolis  Milling  Co.,  Minne- 
apolis, Minn.,  our  check  in  full  of  their  invoice  dated  September  2,  19 — ,  for 
$950.00,  less  2%.    Show  the  remittance  slip  which  might  accompany  the  check. 

21.  On  October  20,  19 — ,  we  sent  the  Ross  Co.,  Des  Moines,  Iowa,  our  check 
in  full  of  their  invoice  dated  October  10,  19—,  for  $1,200.00,  less  2%.  Show 
the  remittance  slip  which  might  accompany  the  check. 

22.  Assume  that  we  employ  a  check  containing  a  statement  of  remittance 
on  its  face,  similar  to  the  form  illustrated  on  page  377.  Write  the  check  stub 
and  the  check  for  the  remittance  referred  to  in  Exercise  20,  above. 

23.  Employing  a  similar  check  and  stub,  fill  them  in  to  correspond  to  the 
transaction  of  Exercise  21,  above. 


BUSINESS  PRACTICE  AND  CUSTOMS 


405 


24.  Assuming  that  the  goods  ordered  in  Exercise  1  are  to  be  shipped  by  the 
American  Express  Company,  prepare  the  Express  Company's  receipt. 

25.  Assuming  that  the  goods  ordered  in  Exercise  2  are  to  be  shipped  by  the 
American  Express  Company  or  by  any  other  express  company,  prepare  the 
proper  receipt. 


26.                  Pay  Roll  Week  Ending  October  14,  19 — 

No. 

Name 

M 

T 

w 

T 

F 

8 

Total  Hours 

Per  Hr. 

Amt. 

1 

Frank  Rose 

8 

8 

9 

8 

8 

7 

55c. 

2 

Cari  Worth 

8 

8 

6 

8 

8 

8 

40c. 

3 

Ben  Brody 

9 

9 

\) 

9 

8 

8 

45c. 

4 

Jesse  Jacobs 

8 

8 

8 

8 

8 

8 

60c. 

5 

A.  Thomas 

9 

9 

8 

6 

7 

8 

62c. 

6 

T.  Jameson 

8 

8 

9 

8 

8 

8 

48c. 

7 

A.  Bishop 

7i 

7 

8 

9 

9 

8 

54c. 

8 

L.  Amson 

8 

9 

8 

Sh 

9 

8 

50c. 

9 

B.  Briggs 

9 

SI 

7 

8 

Sh 

8 

60c. 

10 

J.  KeUs 

8 

6 

8 

9 

9 

9 

56c. 

(a)  Ascertain  the  total  of  the  foregoing  pay  roll. 

(b)  Determine  the  proper  denominations  of  coins  and  bills  required. 

(c)  Prepare  the  pay-roll  envelopes. 

(d)  Prepare  the  currency  memorandum  to  be  presented  to  the  bank. 


27. 


Pay  Roll  Week  Ending  November  11,  19 — 


No. 

Name 

M 

T 

w 

T 

F 

s 

Total  Hours 

Per  Hr. 

Amt. 

1 

G.  Sardou 

8 

8 

8 

8^ 

8 

8 

60c. 

2 

M.  Butler 

9 

8 

8 

7 

8 

8 

50c. 

3 

G.  Eraser 

8 

8 

8 

9 

9 

8 

55c. 

4 

J.  Williams 

7 

7h 

8 

8 

8 

8i 

35c. 

5 

C.  Janeway 

8 

8 

8 

8 

8 

8 

56c. 

6 

D.  Walters 

9 

8 

8 

9 

8 

8 

62§c. 

7 

C.King 

8 

8 

8^ 

8 

8 

8 

60c. 

8 

J.  Bailey 

7 

8 

8 

8 

8 

8 

64c. 

9 

M.  Nathan 

8 

8 

8 

8 

8 

8 

37ic. 

10 

A.  Johns 

8 

8 

9 

9 

8 

8 

52c. 

(a)  Ascertain  the  total  of  the  foregoing  pay  roll. 

(6)  Determine  the  proper  denominations  of  coins  and  bills  required. 

(c)  Prepare  the  pay-roll  envelopes. 

(d)  Prepare  the  currency  memorandum  to  be  presented  to  the  bank. 


406  BOOKKEEPING  AND  ACCOUNTING 

28.  Prepare  a  deposit  slip  on  the  assumption  that  the  deposit  consists  of 
the  following:  Checks  for  $257.89,  $350.00,  $467.98,  $500.89,  $125.00,  $350.00 
and  $75.00,  respectively;  silver,  $8.00,  bills  $175.00. 

29.  Prepare  a  deposit  slip  on  the  assumption  that  the  deposit  consists  of 
the  following:  Silver  $5.00;  gold  $25.00;  checks  for  $137.50,  $150.00,  $89.00, 
$456.89,  $345.00,  $224.56  and  $356.89,  respectively;  and  $50  in  bills. 

30.  Prepare  a  deposit  slip  on  the  assumption  that  the  deposit  consists  of  the 
following:  Bills,  $83.00,  silver  $1.00,  gold  $10.00,  and  checks  for  $132.50, 
$450.00,  $320.00,  $55.75,  $48.00,  $108.95,  $875.00  and  $400.00  respectively. 

31.  Assuming  that  the  balance  on  September  1,  19 —  was  $1,387.64,  and  the 
following  deposits  were  made  and  the  following  checks  drawn,  show  the  check 
book  as  it  would  appear  on  September  30,  19 —  : 


Sept. 


Deposits 

Checks  Drawn 

2 

$450.00 

Sept.   2 

No.  131 

$57.00 

F.  Johnson 

2 

132 

100.00 

D.  Springer 

9 

990.75 

6 

133 

75.00 

A.  Franz 

8 

134 

101.50 

D.  Simmons 

11 

536.00 

8 

135 

98.00 

Miller  Bros. 

9 

136 

14.70 

Bodwell  Co. 

1 

11 

137 

3.00 

Knickerbocker  Ice  Co. 

14 

675.00 

11 

138 

3.20 

Crystal  Spring  Water  Co. 

19 

847.75 

12 

139 

931.00 

Minneapolis  Milling  Co. 

14 

140 

425.00 

Fairview  Mills 

27 

389.65 

15 

141 

25.00 

Edison  Electric  Light  Co. 

16 

142 

200.00 

Stone  Furniture  Co. 

18 

143 

75.00 

F.  Zorn,  Prop. 

20 

144 

400.00 

Pay  roll 

22 

145 

35.00 

Standard  Stationery  Co. 

26 

146 

3.00 

Exclusive  Towel  Supply  Co. 

27 

147 

250.00 

Pay  roll 

28 

148 

36.00 

N.  Y.  Telephone  Co. 

29 

149 

345.00 

Marron  Mills 

30 

150 

25.00 

Petty  Cash 

32.  Assuming  that  the  balance  on  October  1,  19 — ,  was  $2,493.39,  and  that 
the  following  deposits  were  made  and  the  following  checks  drawn,  show  the 
check  book  as  it  will  appear  on  October  31,  19 — : 

Deposits  Checks  Drawn 

Oct.    2    $348.67    Oct.  3  No.  213    $150.00    Franklin  Realty  Co. 

4  214        27.78    N.  Y.  Telephone  Co. 

5  215        14.56    Rich  Stationery  Co. 


BUSINESS  PRACTICE  AND  CUSTOMS  407 


Deposits 

Checks  Drawn 

6      765.00 

5 

216 

2.68 

Knickerbocker  Ice  Co. 

5 

217 

2.40 

Crystal  Spring  Water  Co. 

11      689.70 

7 

218 

135.00 

Pay  roll 

18      550.75 

7 

219 

50.00 

F.  Newman,  Prop. 

10 

220 

490.00 

Simpson  Bros. 

12 

221 

588.00 

John  Roberts 

23      680.00 

14 

222 

115.00 

Pay  roll 

17 

223 

35.00 

Petty  Cash 

19 

224 

235.00 

Braun  Machine  Works 

27      880.80 

20 

225 

135.75 

Pay  Roll 

20 

226 

1176.00 

Ross  Co. 

24 

227 

100.00 

Underwood  Typewriter  Co. 

25 

228 

392.00 

V.  Green 

26 

229 

686.00 

Quinn  Bros. 

•  /■:':. . 

28 

230 

136.00 

Pay  Roll 

30 

231 

50.00 

Longuemare  Carburetor  Co. 

31 

232 

21.00 

Edison  Electric  Light  Co. 

33.  Draw  the  checks  corresponding  to  the  first  three  stubs  of  Exercise  31. 

34.  On  October  1,  we  received  the  following  report  from  our  bank. 


Mr.  Horace  H.  Greeley, 

200  Broadway,  New  York  City 

In  account  with 

The  Exercise  National  Bank  of  New  York                    | 

For  the  month  of  September,  19 — 

Sept.     1    Balance 

$1,387.64 

Deposits 

2 

450.00 

d 

990.75 

11 

536.00 

14 

675.00 

19 

847.75 

27 

Total  credits 

389.65 

$5,276.79 

Total  Charges  deducted 

2,783.40 

October  1,  19—    Balance 

$2,493.39 

408 


BOOKKEEPING  AND  ACCOUNTING 


The  Bank  inclosed  the  following  adding  machine  slips,  corresponding  to 
the  sixteen  vouchers  returned. 


57.00 
100.00 

75.00 
101.50 

98.00 

14.70 

3.00 

3.20 

931.00 

425.00 

25.00 
200.00 

75.00 
400.00 
250.00 

25.00 

2,783.40 


Prepare  reconciliation  statement. 

35.  On  September  15, 19 — ,  we  issuea  a  two-months'  note  in  favor  of  Howard 
Ely  &  Son  for  $620.00,  payable  at  The  Exercise  National  Bank.  Write  the 
note,  which  was  No.  84. 

36.  Show  the  entry  on  our  books  for  the  note  referred  to  in  Exercise  35, 
above. 

37.  Show  the  entry  in  the  books  of  Howard  Ely  &  Son,  for  the  note  referred 
to  in  Exercise  35,  above. 

38.  Show  the  record  in  our  bill  book  for  the  note  referred  to  in  Exercise  35, 
above. 

39.  Show  the  record  in  the  bill  book  of  Howard  Ely  &  Son,  for  the  note 
referred  to  in  Exercise  35,  above. 

40.  On  September  1,  19 —  we  issued  our  one-month  note.  No.  101,  for 
$1,000.00,  with  interest  at  6%,  in  favor  of  The  Bretton  Mills,  payable  at  our 
bank.    Write  the  note. 

41.  Show  the  entry  for  the  note  referred  to  in  Exercise  40,  above,  on  our 
books. 

42.  Show  the  entry  on  the  books  of  The  Bretton  Mills,  for  the  note  referred 
to  in  Exercise  40,  above. 

43.  Show  the  record  in  our  bill  book  for  the  note  referred  to  in  Exercise  40, 
above. 


BUSINESS  PRACTICE  AND  CUSTOMS  409 

44.  Show  the  record  in  the  bill  book  of  The  Bretton  Mills,  for  the  note 
referred  to  in  Exercise  40,  above. 

45.  On  September  19,  19 — ,  we  received  a  six-months'  note,  No.  89,  for 
$1,500.00,  with  interest  at  5%,  from  Jack  Saunders,  payable  at  the  First  National 
Bank.    Write  the  note. 

46.  Show  the  entry  on  our  books  for  the  note  referred  to  in  Exercise  45, 
above. 

47.  Show  the  entry  in  the  books  of  Jack  Saunders,  for  the  note  referred 
to  in  Exercise  45,  above. 

48.  Show  the  record  in  our  bill  book  for  the  note  referred  to  in  Exercise  45, 
above. 

49.  Show  the  record  in  the  bill  book  of  Jack  Saunders,  for  the  note  referred 
to  in  Exercise  45,  above. 

50.  On  October  1,  19—,  we  received  a  90-day  note,  No.  258,  for  $750.00, 
with  interest  at  6%,  from  John  Reynolds,  payable  at  the  New  Zealand  Bank. 
Write  the  note. 

51.  Show  the  entry  on  our  books  for  the  note  referred  to  in  Exercise  50, 
above. 

62.  Show  the  entry  in  the  books  of  John  Reynolds,  for  the  note  referred  to 
in  Exercise  50,  above. 

63.  Show  the  record  in  our  bill  book  for  the  note  referred  to  in  Exercise  50, 
above. 

64.  Show  the  record  in  the  bill  book  of  John  Reynolds,  for  the  note  referred 
to  in  Exercise  50,  above. 

65.  On  October  15,  19 — ,  we  drew  a  sight  draft  on  Paul  Jones,  240  Fifth 
Avenue,  New  York  City,  No.  14,  for  $550.00.    Write  the  draft. 

66.  Show  the  entry  on  Paul  Jones'  books  (Exercise  55,  above),  after  the  draft 
has  been  presented  and  paid  by  him. 

57.  Show  the  entry  on  our  books  (see  Exercise  55,  above),  when  the  bank 
had  credited  our  account  with  the  proceeds,  if  the  collection  charges  amounted 
to  $2.50. 

68.  On  October  10,  19 — ,  Timothy  Lane  drew  a  sight  draft  on  us,  No.  21, 
for  $600.00.    Write  the  draft. 

69.  Show  the  entry  on  our  books  (see  Exercise  58,  above),  after  the  draft 
has  been  presented  and  paid  by  us. 

60.  Show  the  entry  on  Timothy  Lane's  books  (see  Exercise  68,  above), 
when  the  bank  had  credited  his  account  with  the  proceeds,  if  the  collection 
charges  amounted  to  $2.75. 


PART  VII 
SINGLE  ENTRY 

Single  entry  bookkeeping,  the  subject  matter  of 
this  division,  is  not  nearly  as  popular  as  double 
entry.  It  is  presented  in  order  to  acquaint  the 
student  with  the  method  of  recording  transactions 
employed  by  many  small  retail  merchants. 


SINGLE  ENTRY 

The  student  who  is  familiar  with  the  subject  matter  of  Part  I  of 
this  book  should  have  no  difficulty  in  keeping  what  are  known  as  single 
entry  books.  Essentially,  single  entry  bookkeeping  is  partial  or  in- 
complete double  entry  bookkeeping.  Inasmuch  as  there  may  be  any 
nmnber  of  stages  of  incompletion,  it  is  difficult  to  define  practical 
single  entry  bookkeeping.  It  will  be  easier  to  frame  a  definition  after 
observing  what  single  entry  bookkeeping  is  really  like.  So,  therefore, 
let  us  illustrate  the  difference  between  single  entry  and  double  entry 
bookkeeping  by  studying  the  rules  for  Journahzing  as  applied  to  a  few 
typical  business  transactions: 


The  Transaction. 

Double  Entry  Results. 

Single  Entry  Results. 

Debit. 

Credit. 

Debit. 

Credit. 

(1)  John  Doe,  Proprietor,  began 
business  by  investing  cash 

Cash  a/c 

John  Doe, 
Prop,  a/c 

John  Doe, 
Prop,  a/c 

(2)  Paid  rent  of  store  in  cash 

Expense 

a/c 

Cash  a/c 

(3)  Bc'ight  merchandise  for  cash 

Mdse.  a/c 

Cash  a/c 

(4)  Sold  merchandise  for  cash 

Cash  a/c 

Mdse.  a/c 

(5)  Bought  merchandise  of  Brown 
&  Co.,  on  account 

Mdse.  a/c 

Brown  & 

Co.  a/c 

Brown  & 
Co.  a/c 

(6)  Paid  Brown  &  Co.,  in  full 

Brown  & 

Co.  a/c 

Cash  a/c 

Brown  & 
Co.  a/c 

(7)  Sold  Smith  &  Son,  merchandise 
on  account. 

Smith  & 
Son  a/c 

Mdse.  a/c 

Smith  & 
Son  a/c 

(8)  Received  payment  from  Smith 
&  Son  in  full  of  account 

Cash  a/c 

Smith  & 
Son  a/c 

Smith  & 
Son  a/c 

(9)  Bought  merchandise  from  Lane 
&  Jones  on  account 

Mdse.  a/c 

Lane  & 
Jones  a/c 

Lane  & 
Jones  a/c 

(10)  Gave  our  30-day  note  in  full 
of  Lane  &  Jones'  a/c 

Lane  & 
Jones  a/c 

Notes 
Payable 

a/c 

Lane  & 
Jones  a/c 

413 


414 


BOOKKEEPING  AND  ACCOUNTING 


The  Transaction. 

Double  Entry  Results. 

Single  Entry  Results. 

Debit. 

Credit. 

Debit. 

Credit. 

(1 1)  Paid  our  note  in  full  of  account 

Notes 
Payable 

a/c 

Cash  a/c 

(12)  Sold  merchandise  to  Zinn  & 
Zinn,  on  account 

Zinn  & 
Zinn  a/c 

Mdse.  a/c 

Zinn& 
Zinn  a/c 

(13)  Received  Zinn  &  Zinn's  30- 
day  note  in  full  of  account 

Notes 
Receiv- 
able a/c 

Zinn  & 
Zinn  a/c 

Zinn  & 
Zinn  a/c 

(14)  Received  payment  from  Zinn 
&  Zinn,  for  their  note  due 
today 

Cash  a/c 

Notes 
Receiv- 
able a/c 

The  single  entry  Journal,  which  would  record  the  above  transactions 
numbered  1  to  14,  inclusive,  would  appear  as  follows: 

October  19— 


John  Doe,  Prop.  Cr. 

John  Doe  began  the  provision 
business  investing  cash 
$5,000 

5 
Brown  &  Co.  Cr. 

Bot.  mdse.  on  acct. 

6 
Brown  &  Co.  Dr. 

Paid  Brown  &  Co.  in  full 

7 
Smith  &  Sons  Dr. 

Sold  Smith  &  Sons  mdse.  on 
acct. 

8 
Smith  &  Sons  Cr. 

Reed,  pajnnent  from  Smith 
&  Sons  in  full  of  acct. 


000 


475 


475 


250 


250 


00 


00 


00 


00 


00 


SINGLE  ENTRY 


415 


9 
Lane  &  Jones  Cr. 

Bot  mdse.  from  Lane  &  Jones 
on  acct. 

10 
Lane  &  Jones  Dr. 

Gave  Lane  &  Jones  our  30- 
day  note  in  full  of  acct. 

12 
Zinn  &  Zinn  Dr. 

Sold  mdse.  to  Zinn  &  Zinn 
on  acct. 

13 
Zinn  &  Zinn  Or. 

Reed.  Zinn  &  Zinn's  30-day 
note  in  full  of  acct. 


460 


160 


375 


375 


00 


00 


00 


00 


Observations. — (1)  The  student  should  observe  that,  as  a  result  of 
the  first  transaction,  while  in  double  entry  Cash  a/c  was  debited  and  a 
person's  account  credited,  in  single  entry  there  was  no  debit  and  just 
one  credit,  that  to  a  person^s  account. 

(2)  It  should  be  observed  that,  as  a  result  of  the  second  transaction, 
double  entry  bookkeeping  resulted  in  a  debit  to  Expense  a/c  and  a  credit 
to  Cash  a/c,  but  that  in  single  entry  neither  a  debit  nor  a  credit  entry 
was  made. 

(3)  The  third  transaction  resulted  in  debits  and  credits,  according 
to  the  rules  of  double  entry  bookkeeping,  but  the  single  entry  record 
shows  no  entry.     A  similar  observation  is  true  of  the  fourth  transaction. 

(4)  The  fifth  transaction  resulted  in  debits  and  credits  as  shown 
by  the  record  in  the  double  entry  division,  but  in  single  entry  only  a 
credit  resulted  and  that  to  a  person^s  account. 

Conclusion. — On  the  basis  of  the  foregoing  analysis,  and  on  the 
observations  of  the  results  of  the  other  transactions  shown  on  pages 
413-414,  it  is  evident  that  single  entry  bookkeeping  differs  in  at  least 
two  particulars  from  double  entry  bookkeeping,  namely: 

(a)  In  that  whereas  every  transaction,  when  treated  according  to  the 
rules  of  double  entry  bookkeeping,  results  in  debits  and  credits  of  equal 
amount,  single  entry  bookkeeping  appears  to  result  in  either  a  debit 
or  a  credit,  or  in  neither  a  debit  nor  a  credit. 

(6)  In  that  whereas,  in  double  entry  bookkeeping,  debits  and 
credits  appear  to  personal  and  impersonal  accounts,  single  entry  debits 
and  credits  appear  to  be  made  only  to  personal  accounts. 


416  BOOKKEEPING  AND  ACCOUNTING 

As  a  matter  of  fact,  single  entry  bookkeeping  does  contemplate  the 
keeping  of  accounts  with  persons  only.  Thus,  if  we  had  access  to  a 
single  entry  Ledger,  we  would  find  that  it  consists  of  accounts  with  peo- 
ple only,  that  is,  with  debtors  and  creditors  and  with  the  proprietor. 
The  method  of  recording  single  entry  transactions,  so  that  the  proper 
debits  and  credits  to  personal  accounts  shall  be  obtained,  constitutes 
a  very  important  part  of  single  entry  bookkeeping. 

The  student  should  observe  that  only  one  Journal  column  was 
employed,  and  that  the  indication  of  debiting  and  crediting  was  accom- 
phshed  by  means  of  labeHng  the  title  of  the  separate  account,  as  shown. 

In  practical  single  entry  bookkeeping,  there  is  a  tendency  to  employ 
the  books,  forms  and  procedure  common  to  double  entry  bookkeeping, 
though  the  Journal  form  illustrated  above  is  still  taught  to  some  extent. 
The  transactions  of  a  concern  which  employs  so-called  single  entry 
bookkeeping  would  be  recorded  in  a  Journal  utilizing  both  money  col- 
umns, and  in  a  Cash  Book,  one  column  of  which  on  each  side  would  be 
employed  for  the  purpose  of  posting,  whereas  the  other  money  colunm 
on  both  sides  would  be  used  for  memorandum  cash  only,  that  is,  for 
cash  receipts  and  expenditures  which  did  not  affect  personal  accounts, 
and  which,  accordingly,  were  not  to  be  posted  to  the  Ledger. 

As  a  practical  illustration  of  single  entry  bookkeeping,  study  the 
entries  resulting  from  the  following  transactions: 

19— 

June   1    Nelson  Reed  began  business  by  investing  Cash  $5,000.00,  Merchandise 

$3,000.00,  Furniture  and  Fixtures,  $450.00  and  Horses  and  Wagons 

$1,000.00 

2  Paid  rent,  $100.00;  bot.  stationery,  $18.00 

3  Bot.  mdse.  for  cash,  $850.00 

4  Bot.  mdse.  for  cash,  $375.00 
6  Sold  mdse.  for  cash,  $675.00 
6  Sold  mdse.  for  cash,  $700.00 
6    Paid  salaries,  $72.00 

8  Bot.  mdse.  from  Willis  Bros.,  $990.00,  on  acct. 

9  Bot.  mdse.  from  James  Simpson,  $1,500.00,  on  acct. 

10  Sold  M.  Santon,  mdse.  $1,800.00,  on  acct. 

11  Sold  Bartow  Bros.,  mdse.  $2,000.00,  on  acct. 

12  Bot.  mdse.  from  Willis  Bros.,  $1,200.00,  on  acct. 

13  Bot.  mdse.  from  Orkin  Bros.,  $1,350.00,  on  acct. 
13  Sold  M.  Santon,  mdse.  $1,000.00,  on  acct. 

13    Paid  salaries,  $72.00 

15  Reed,  from  M.  Santon,  $1,000.00  cash  on  acct. 

16  Paid  Willis  Bros.,  $1,500.00  cash  on  acct. 

(Continued  on  page  ^18) 


SINGLE  ENTRY 


417 


JOURNAL 
June  1,  19— 


Nelson  Reed,  Prop. 
Began  business  by  investing 
Cash  $5,000.00 

Merchandise  3,000.00 

Furniture  and  Fixtures      450.00 
Horses  and  Wagons         1,000 .  00 
8 
WiUis  Bros. 
Bot.  mdse.  on  acct. 
9 
James  Simpson 
Bot.  mdse.  on  acct. 
10 
M.  Santon 
Sold  mdse.  on  acct. 
11 
Bartow  Bros. 
Sold  mdse.  on  acct. 
12 
Willis  Bros. 
Bot.  mdse.  on  acct. 
13 
Orkin  Bros. 
Bot.  mdse.  on  acct. 
13 
M.  Santon 
Sold  mdse.  on  acct. 
17 
Thomas  Arnold 
Bot.  mdse.  on  acct. 
18 
Bartow  Bros. 
Sold  mdse.  on  acct. 
19 
Bartow  Bros. 
Reed,  their  30-day  note  on  acct. 
20 
Brown  Bros. 
Sold  mdse,  2/10,  n/30 
22 
Orkin  Bros. 
Gave  them  our  30-da.  note  on  acct. 
24 
WiUis  Bros. 
Gave  them  our  15-da.  note  on  acct. 
27 
Brown  Bros. 
Reed,  their  30-day  note  on  acct. 


800 
000 


000 


00 


500 


00 


200 
000 
500 


450 


00 


990 


00 


50000 


200 
350 


00 
00 


000 


00 


500 


00 


50000 


418 


BOOKKEEPING  AND  ACCOUNTING 


CASH  RECEIPTS 


19— 
June 


Nelson  Reed,  Prop.,  Investment 
Cash  sales 
Cash  sales 

M.  Santon  Reed,  on  acct 

Bartow's  note  discounted,  dis.  $6 .  25 
M.  Santon  Reed,  on  acct. 

Discounted  our  30-day  note  at  bank, 
discount,  $20.00 

Total  of  cash  receipts  to  be  posted 


To  be  Posted 


000 

500 


500 


Not 
to  be  Posted 


000 
675 
700 

493 


13 


500 


348 


00 
00 
00 

75 


00 
00 


75 


June  17  Bot.  mdse.  from  Thomas  Arnold,  $1,000.00,  on  acct. 

18  Sold  Bartow  Bros.,  mdse.  $1,500.00,  on  acct. 

19  Reed,  a  30-day  note  for  $1,500.00  from  Bartow  Bros,  on  acct. 

20  Sold  Brown  Bros,  mdse.,  2/10,  n/30,  $1,200.00 
20  Paid  salaries,  $72.00 

22  Gave  Orkin  Bros,  our  30-day  note  for  $1,000.00  on  acct. 

23  Discounted  Bartow  Bros.'  note  of  the  19th. 

24  Gave  Willis  Bros,  our  15-day  note  for  $500.00  on  acct. 

25  Reed.  $500.00  cash  from  M.  Santon,  on  acct. 

26  Paid  for  shoeing  horses,  $7.00. 

27  Reed,  a  30-day  note  from  Brown  Bros,  for  $500.00,  on  acct. 
27  Paid  salaries,  $72.00 

29  Gave  James  Simpson  $800.00  cash  on  acct. 

29  Discounted  our  own  30-day  note  for  $4,000.00  at  bank 

30  Paid  telephone  bill  $10.00;  insurance   premium   $56.00.    Mr.    Reed 

drew  for  private  use  $50.00 

Merchandise  Inventory  is  valued  at  $3,500.00;    furniture  and  fixtures  and 
horses  and  wagons  have  each  depreciated  10%. 


SINGLE  ENTRY 


419 


CASH  DISBURSEMENTS 


To  be  Posted 

Not 
to  be  Posted 

19— 

June 

2 
3 
4 
6 
13 

Expense             Rent  $100  Sta.  $18.00 
Cash  Purchases  Bot.  mdse.  for  cash 
Cash  Purchases  Bot.  mdse.  for  cash 
Expense             Paid  salaries 
Expense             Paid  salaries 

118 

850 

375 

72 

72 

00 
00 
00 
00 
00 

16 

Willis  Bros.        Paid  on  account 

2 

1 

500 

00 

20 

Expense             Paid  salaries 

72 

00 

26 

Expense             Pd.  for  shoeing  horses 

7 

00 

27 

Expense             Paid  salaries 

72 

00 

29 

James  Simpson  Paid  on  account 

3 

800 

00 

30 

Expense             Paid    telephone    bill 
$10.00,  insurance 
premium  $56.00 

66 

00 

30 

Nelson  Reed,  Prop. 

Drew  for  private  use 

1 

50 

00 

Total  of  cash  disbursements  to  be 

posted 
Balance 



2 

350 

00 

2 
9 

350 
294 

00 

75 

13 

348 

75 

Obviously  enough,  inasmuch  as  single  entry  bookkeeping  does  not 
require  the  equaUty  of  debits  and  credits,  no  Trial  Balance  can  be  taken. 
A  Proof  of  Posting,  however,  is  available.  Its  object  is  to  ascertain 
whether  or  not  every  debit  and  credit  in  the  original  entry  books,  i.e.,  in 
this  illustration,  in  the  Jom-nal  and  the  Cash  Book,  though  in  other 
cases  a  Sales  Book  and  Purchase  Book  might  also  be  included,  was 
correctly  posted  to  the  Ledger.  To  illustrate,  let  us  consider  the 
following  Ledger  accounts,  which  resulted  from  the  posting  of  the 
transactions  recorded  in  the  Journal  and  Cash  Book  illustrated  above. 


Nelson  Reed,  Prop. 

19— 

19— 

June 

30 

C.B. 

2 

50 

00 

June 

1 

J 

1 

9 

450 

00 

120 


BOOKKEEPING  AND  ACCOUNTING 

Willis  Bros. 


19— 

19— 

June 

16 

C.B. 

2 

1 

500 

00 

June 

8 

J 

1 

990 

00 

24 

J 

1 

500 

00 

12 

J 

1 

1 

200 

00 

James 

Si 

tnpson 

19— 

2 

800 

00 

June 

19 

J 

1 

1 

500 

19— 
June 


29 


C.B. 


Thomas  Arnold 


00 


M. 

San  ton 

19— 

19— 

June 

10 

J 

1 

1 

800 

00 

June 

15 

C.B. 

1 

1 

000 

00 

13 

J 

,1 

1 

000 

00 

25 

C.B. 

1 

500 

00 

Bartow  Bros. 

19- 

1 

19— 

June 

11 

18 

J 
J 

1 

1 

2 
1 

000 
500 

00 
00 

June 

19 

J 

1 

1 

500 

00 

Orkin  Bros. 

19— 

19— 

June 

22 

J 

1 

1 

000 

00 

June 

13 

J 

1 

1 

350 

00 

19— 
June 

17 

J 

1 

1 

000 

00 


Brown  Bros. 

19— 

19— 

June 

20 

J 

1 

1 

200 

00 

June 

27 

J 

1 

500 

00 

SINGLE  ENTRY 


421 


The  following  is  a  summary  of  all  the  Ledger  accounts: 

Summary  of  All  Ledger  Accoimts 
June  30,  Id— 


L.F. 

1 

Nelson  Reed,  Prop. 

50 

00 

9,450 

00 

2 

Willis  Bros. 

2,000 

00 

2,190 

00 

3 

James  Simpson 

800 

00 

1,500 

00 

4 

M.  Santon 

2,800 

00 

1,500 

00 

5 

Bartow  Bros. 

3,500 

00 

1,500 

00 

6 

Orkin  Bros. 

1,000 

00 

1,350 

00 

7 

Thomas  Arnold 

1,000 

00 

8 

Brown  Bros. 

1,200 

00 

500 

00 

11,350 

00 

18,990 

00 

The  Proof  of  Posting,  based  upon  the  foregoing  illustration,  is  as 
foUows: 

Proof  of  Posting 
June  30,  19— 


Totals,  Journal  P.  1 

Total,  receipt  side  of  Cash  Book 

Total,  disbursement  side  of  Cash  Book 

Totals  in  books  of  original  entry 


Debits 


9,000.00 


2,350.00 


11,350.00 


Credits 


17,490.00 

1,500.00 


18,990.00 


The  student  should  observe  that  the  total  of  all  debits  posted  from 
the  original  entry  books  is  exactly  equal  to  the  total  of  Ledger  debits, 
as  shown  by  the  Proof  of  Posting;  also,  that  the  credits  correspond 
similarly. 

As  the  ultimate  object  of  all  bookkeeping  is  to  enable  the  proprietor 
to  ascertain  his  condition  and  progress,  let  us  now  see  whether  or  not 
single  entry  bookkeeping  affords  information  along  these  Unes. 

By  inventorying  the  merchandise,  fixtures  and  other  properties, 
we  obtain  all  the  assets  which  are  not  in  the  books.  By  adding  to  the 
liabihties  shown  in  the  books  the  notes  payable  outstanding,  which 
should  be  hsted  in  some  memorandum  book,  a  full  list  of  Uabilities  is 
also  obtained.     By  comparing  the  assets  with  the  Uabilities,  the  present 


422 


BOOKKEEPING  AND  ACCOUNTING 


capitaLcailbefgimd.  The  difference  between  the  present  capital  and  the 
netjnvestment  of  the  proprietor,  as  shown  by  his  Ledger  account,  deter- 
mines^thejnet  profit  or  net  loss  for  the  period  under  review.  This  info]> 
mation  is  often  shown  in  statements  of  the  following  form: 


Statement  of  Assets  and  Liabilities 
June  30,  19— 

Liabilities: 


Cash  on  hand  $9,294.75 

Accounts  Receivable: 

M.  Santon     $1,300.00 

Bartow  Bros.  2,000.00 

Brown  Bros.      700 .  00  4,000 .  00 


Notes  Receivable  500 .  00 

Furniture  and  Fixtures        405 .  00 
Horses  and  Wagons  900 .  00 

Merchandise  Inventory  3,500.00 


Accounts  Payable: 
Willis  Bros.      $190.00 
James  Simpson  700.00 
OrkinBros.        350.00 
T.Arnold        1,000.00  $2,240.00 


Notes  Payable 

Total  Liabilities 

Nelson  Reed,  Prop.,  Net 
Capital 


$18,599.75 


5,500.00 
$7,740.00 


10,859.75 
$18,599.75 


Statement  of  Profit 

June  30,  19— 

Net  Capital,  as  shown  by  Statement  of  Assets  and  Liabilities 
Net  Investment  of  proprietor,  as  per  Ledger  account 

Net  Profit 


$10,859.75 
9,400.00 

$1,459.75 


After  ascertaining  what  the  net  profit  or  net  loss  for  a  period  is,  it  is 
necessary  to  adjust  the  proprietor's  account  in  the  Ledger,  so  that  it 
shall  show  the  net  capital  of  the  business  as  of  the  closing  date.  For  this 
purpose,  a  Journal  entry  is  made,  as  follows: 


June  30,  19— 
Nelson  Reed,  Prop. 

Net  Profit  from  June  1  to  June  30, 19 — , 
as  shown  by  the  Statement  of  Profit, 
credited  to  Mr.  Reed's  account. 


1,459 


75 


SINGLE  ENTRY 


42S 


After  posting  the  foregoing  entry,  Mr.  Reed's  account  would  appear 
as  follows: 

Nelson  Reed 


19— 
June 


C.B. 
Net  Capital 


2 

50 
10,859 

00 

75 

19— 
June 

July 

1 
30 

1 

10,909 

75 

Investment 
Net  Profit 


Net  Capital 


J.l 
2 


9,450 
1,459 


10,909 


10,859 


75 


75 


It  is  now  clear  that  the  balance  of  Mr.  Reed's  accoimt  corresponds 
with  the  net  capital  shown  by  the  Statement  of  Assets  and  Liabihties, 
previously  prepared. 


2 

V 

V 

V 

2 

3 

4 

5 

6 

V 

V 

V 

V 

V 


June  30,  19— 

I,  Nelson  Reed,  have  this  day  decided  to 
convert  my  books  from  Single  Entry  to 
Double  Entry.  My  net  capital  is  disclosed 
by  the  following  balances: 


Cash 

M.  Santon 

Bartow  Bros. 

Brown  Bros. 

Notes  Receivable 

Furniture  and  Fixtures 

Horses  and  Wagons 

Merchandise 

Notes  Payable 

Willis  Bros. 

James  Simpson 

Orkin  Bros. 

T.  Arnold 

Nelson  Reed,  Prop. 


Balance  on  hand 
Due  us 
Due  us 
Due  us 
As  per  list 
As  per  inventory 
As  per  inventory 
As  per  inventory 
As  per  list 
Due  them 
Due  him 
Due  them 
Due  him 
Net  Capital 


All  of  the  foregoing  balances  have  been 
posted  to  the  Ledger,  as  indicated,  except  the 
accounts  which  are  checked.  These  items 
were  not  posted  because  they  were  already  in 
the  Ledger. 

Changing  to  Double  Entry. — It  has  already  been  pointed  out  that 
single  entry  bookkeeping  is  not  universally  popular,  and  that,  where 


9,294 

1,300 

2,000 

700 

500 

405 

900 

3,500 


5,500 
190 
700 
350 

1,000 


10,85975 


00 
00 
00 
00 
00 


424  BOOKKEEPING  AND  ACCOUNTING 

employed,  its  use  is  restricted  to  a  very  few  lines  of  retail  businesses. 
The  accountant,  rather  than  the  bookkeeper,  is  frequently  called  upon 
to  change  incomplete  double  entry  books,  or  single-entry  books,  to 
double-entry  books,  and  so  it  is  necessary  for  the  student  to  obtain  some 
idea  as  to  the  necessary  procedure.  Though  the  subject  matter  in- 
volved is  more  suitable  for  advanced  work,  it  is  nevertheless  desirable 
that  a  brief  discussion  be  included  here. 

If  the  books  of  Mr.  Reed,  presented  above,  were  to  be  converted  into 
double  entry  books,  it  would  simply  be  necessary  to  add  to  the  Ledger 
the  accounts  shown  in  the  Statement  of  Assets  and  Liabilities  which  are 
not  personal  accounts,  and  which  are,  therefore,  not  already  in  the 
Ledger.    The  Journal  entry  shown  on  page  423  accompUshes  this  object. 

It  should  be  evident  to  the  student  that,  after  posting,  as  has  been 
indicated  above,  the  old  Ledger  would  be  in  balance,  i.e.,  the  total  of  all 
accounts  having  debit  balances  would  be  exactly  equal  to  the  total  of  all 
accounts  having  credit  balances.  However,  though  the  equivalence  is 
obvious,  it  is  customary  to  take  what  is  known  as  a  Proof  Trial  Balance, 
for  the  purpose  of  making  assurance  doubly  sure.  Such  a  Proof  Trial 
Balance  is  herewith  submitted: 

Proof  Trial  Balance 
June  30,  19— 

Cash $9,294.75 

M.  Santon 1,300.00 

Bartow  Bros 2,000.00 

Brown  Bros 700.00 

Notes  Receivable 500.00 

Furniture  and  Fixtures 405 .  09 

Horses  and  Wagons 900.00 

Merchandise 3,500.00 

Notes  Payable $5,500.00 

Willis  Bros 190.00 

James  Simpson 700.00 

Orkin  Bros 350.00 

T.  Arnold 1,000.00 

Nelson  Reed,  Prop 10,859.75 

$18,599.75     $18,599.75 


The  books  of  Mr.  Nelson  Reed  have  now  become  double  entry  books. 
Future  transactions  will  be  recorded  in  the  old  Journal  and  in  the  old 
Cash  Book,  which  are  exactly  of  the  same  form  as  the  corresponding 


SINGLE  ENTRY  425 

simple  double  entry  books.    A  Sales  Book  and  a  Purchase  Book  may, 
of  course,  be  added,  without  introducing  disturbing  factors. 

The  change  from  single  entry  to  double  entry,  described  above, 
has  been  reduced  to  its  simplest  form.  There  are  other  methods  whereby 
such  single  entry  books  are  converted  into  double  entry  books,  but 
this  information  must  be  obtained  from  specialized  accounting  books, 
such  as  "  Elements  of  Accounting,"  for  example. 

SUMMARY 

It  should  now  be  clear  to  the  student  that  single  entry  bookkeep- 
ing does  not  differ  considerably  from  double  entry  bookkeeping.  By 
means  of  single  entry  bookkeeping,  as  has  been  shown,  the  condition 
and  progress  of  the  business  may  be  ascertained,  provided  the  book 
information  is  supplemented  by  data  obtained  from  outside  sources. 
The  rules  of  double  entry  bookkeeping,  in  so  far  as  they  affect  debiting 
and  crediting,  are  apphcable  to  single  entry,  if  personal  accounts  only 
are  considered.  It  is  for  this  reason  that  the  rule  for  journalizing  in 
single  entry  is  sometimes  stated  as  follows: 

Ascertain  debits  and  credits  according  to  the  rules  of  double  entry  j 
record  debits  and  credits  in  so  far  as  they  affect  personal  accounts 
only. 

The  practicing  accountant  does  not  favor  single  entry  bookkeeping. 
The  results  of  his  experience  condemn  the  employment  of  this  type  of 
bookkeeping.  He  knows  that  fraud  is  much  more  easily  concealed 
through  the  medium  of  single  entry  books.  He  also  knows  that  the  addi- 
tional work  entailed  by  double  entry  bookkeeping  is  slight  and  that  the 
advantages,  such  as  statistical  and  cost  information  obtainable  through 
the  medium  of  double  entry,  far  outweigh  the  disadvantages  due  to  the 
slightly  increased  labor  involved. 

Despite  the  attitude  of  the  pubUc  accountant,  some  business  men, 
though  in  ever  decreasing  number,  continue  to  employ  single  entry 
books.  Among  the  business  houses  which  do  continue  to  employ  this 
kind  of  bookkeeping,  there  may  be  mentioned  retail  grocers,  provision 
dealers,  fruit  dealers,  etc. 

The  student  is  interested  not  only  in  single  entry  bookkeeping  as 
such,  but  also  in  the  method  of  converting  single  entry  books  into  double 
entry  books.  The  steps  which  are  required  to  bring  about  the  change 
are  as  follows: 

(a)  Preparation  of  a  Statement  of  Assets  and  LiabiUties. 


426  BOOKKEEPING  AND  ACCOUNTING 

(6)  Preparation  of  a  Statement  of  Profit  or  Loss. 

(c)  Addition  to  the  proprietor's  account  of  the  net  profit,  or  the  de- 
duction from  his  account  of  the  net  loss,  by  means  of  a  suitable  Joiu*nal 
entry. 

(d)  The  actual  change  by  means  of  a  Journal  entry,  which  adds  to  the 
old  Ledger  the  asset  and  Uabihty  items  not  previously  there. 

Questions 

1.  What  is  single  entry  bookkeeping? 

2.  How  does  it  differ  from  double  entry  bookkeeping? 

3.  What  type  of  concerns  employ  single  entry  books? 

4.  What  is  meant  by  proof  of  posting? 

5.  Compare  the  proof  of  posting  with  the  trial  balance. 

6.  How  may  the  net  capital  be  found  when  single  entry  books  are  employed? 

7.  How  may  the  net  profit  or  net  loss  be  found  on  the  basis  of  single  entry 
bookkeeping? 

8.  Tell  how  to  change  single  entry  books  to  double  entry  books. 

9.  State  some  of  the  advantages  of  double  entry  bookkeeping  not  possessed 
by  single  entry  bookkeeping. 

10.  How  may  double  entry  books  be  changed  to  single  entry  books? 

Exercises 

1 .  Enter  the  transactions  of  Exercise  20D,  page  147,  in  single  entry  books. 
Take  a  Proof  of  Posting,  and  prepare  a  Statement  of  Assets  and  Liabilities. 
Also  find  the  net  profit  or  net  loss.     (Mdse.  Inventory:   $5,528.00.) 

2.  Enter  the  transactions  of  Exercise  26D,  page  149,  in  single  entry 
books.  Take  a  Proof  of  Posting  and  prepare  a  Statement  of  Assets  and 
Liabilities.    Also  find  the  net  profit  or  net  loss. 

3.  Enter  the  transactions  of  Exercise  26B,  page  128,  in  single  entry  books. 
Take  a  Proof  of  Posting  and  prepare  a  Statement  of  Assets  and  Liabilities. 
Also  find  the  net  profit  or  net  loss. 


PART  VIII 
MISCELLANEOUS  TOPICS 

The  subjects  included  in  this  division  are  in-- 
tended  as  a  summary  of  important  topics  noi 
previously  presented  in  the  text. 


MISCELLANEOUS  TOPICS 

In  this  division  of  the  book,  it  is  planned  to  present  certain  mis- 
cellaneous topics  which  have  not  been  included  previously,  or  to  which 
casual  reference  only  was  made.  Though  it  is  impossible,  within  the 
scope  of  any  single  test,  to  bring  together  all  possible  business  trans- 
actions which  occur  in  actual  practice,  it  is  nevertheless  felt  that  some 
few  additional  topics  might  advantageously  be  shown  here. 


I.  BUILDING  CONTRACTS 

The  work  of  the  building  contractor  is  so  speciahzed  that  an  entire 
volume  might  readily  be  written  on  the  subject.  It  is  now  intended 
to  present  just  a  few  topics  connected  with  the  general  subject  of  build- 
ing contracts.  For  example,  we  shall  discuss,  both  from  the  point  of 
view  of  the  principal  and  of  the  contractor,  the  following  items:        i 

(a)  The  entering  into  the  contract. 

(6)  Allowance  for  extras. 

(c)  Payments  on  account  of  contract. 

(d)  Subcontracting. 

A.  Entering  into  the  Contract 

Let  us  assume  that  Thomas  H.  Brown  wishes  to  build  a  dyehouse  in 
connection  with  his  mill.  Plans  and  specifications  are  drawn  up  and  a 
number  of  contractors  are  invited  to  submit  estimates  or  bids  for  the 
work.  As  a  result  of  such  competitive  bids,  assume  that  the  Arthur  H. 
Lane  Construction  Company  was  awarded  the  contract  for  $60,000.00. 
At  this  time,  it  is  customary  to  set  up  entries  of  the  following  form: 

(1)  On  the  books  of  the  principal: 

Dyehouse  Contract $60,000.00 

Arthur  H.  Lane  Construction  Co.,  Contractor  $60,000.00 

(2)  On  the  books  of  the  contractor: 

Thomas  H.  Brown,  Owner $60,000.00 

Contracts $60,000.00 

429 


430  BOOKKEEPING  AND  ACCOUNTING 

B.  Allowance  for  Extras 

If  any  extra  work  was  ordered,  entries  are  made  in  exactly  the  same 
form  as  those  shown  in  connection  with  the  original  contract.  Deduc- 
tions consequent  upon  elimination  of  some  of  the  work  originally  con- 
tracted for,  or  as  a  result  of  substitution  of  cheaper  material,  necessi- 
tates entries  reversing  those  shown  in  connection  with  the  original 
contract. 

C.  Payments  on  Account  of  Contract 

Payments  are  usually  made  as  a  result  of  a  requisition  issued  by  the 
contractor,  approved  by  the  architect  or  supervising  engineer,  and  for- 
warded to  the  principal.  Such  requisitions  are  not  usually  paid  in  full, 
because  most  contracts  stipulate  that  a  percentage,  varying  usually 
from  10  to  15%,  shall  be  retained  by  the  principal  until  some  time  after 
the  entire  contract  has  been  satisfactorily  completed.  Thus,  if  the 
Arthur  H.  Lane  Construction  Co.  had  submitted  a  requisition  for 
$20,000.00,  which  had  been  approved  by  the  architect,  and  if,  according 
to  the  terms  of  the  contract,  10%  was  to  be  retained  by  the  principal, 
the  following  entries  would  result : 

(1)  On  the  books  of  the  principal: 

Arthur  H.  Lane  Construction  Co.,  Contractor    $18,000.00 
Cash $18,000.00 

(2)  On  the  books  of  the  contractor: 

Cash $18,000.00 

Thomas  H.  Brown,  Owner $18,000.00 

The  entries  shown  in  the  foregoing  are  of  the  simplest  kind.  In 
many  cases  the  entries  would  show  that  $20,000.00  worth  of  work  had 
been  completed,  but  that  $2,000.00  had  been  reserved.  Such  entries, 
and  other  related  matter,  cannot  be  discussed  in  this  text. 

D.  Subcontracting. 

The  general  contractor  for  the  building  very  frequently  sublets 
portions  of  the  work,  if  not  all  of  it,  to  other  contractors.  Assuming 
that  the  Arthur  H.  Lane  Construction  Co.  entered  into  such  sub- 
contracts, entries  of  the  following  form  would  then  be  in  order: 

(1)  On  the  books  of  the  general  contractor: 
Subcontracts $ 

,  Subcontractor  $ ■ 

(2)  On  the  books  of  the  subcontractor: 

Arthur  H.  Lane  Construction  Co.,  Contractor    $ 

Contracts $ • 


MISCELLANEOUS  TOPICS  431 

n.  CONTINGENT  LIABILITIES 

In  the  footnote  to  page  63  of  the  text,  a  casual  reference  was  made  to 
the  contingent  liability  which  arises  as  a  result  of  discounting  notes 
receivable.  The  contingent  Hability  referred  to  exists  in  virtue  of  the 
fact  that,  before  we  can  discount  such  notes,  we  must  indorse  them. 
This  indorsement,  among  other  things,  signifies  that,  in  the  event  of  the 
maker's  failure  to  redeem  the  note  at  maturity,  we  shall  do  so.  Accord- 
ingly, imtil  the  maker  does  redeem  his  promise,  we  are  contingently 
responsible  for  the  pajmient  of  the  note.  The  contingency,  as  must  be 
quite  clear,  is  to  be  found  in  the  possibihty  that  we  may  be  called  upon  to 
pay  the  note.  Accountants  provide  for  the  recording  of  such  contingent 
habihties  in  the  manner  illustrated  by  the  following  entries: 

(1)  When  the  note  is  first  received  by  us : 

Notes  Receivable $1,000.00 

Customer $1,000.00 

(2)  When  the  note  is  discounted  by  us: 

Cash $990.00 

Discount  on  Notes 10.00 

Notes  Receivable  Discounted $1,000.00 

Observe  that  instead  of  crediting  Notes  Receivable  accoimt  we 
opened  a  new  account  which  remains  on  the  books  until  the  contingent 
habihty  has  disappeared. 

If,  prior  to  the  maturity  of  the  note,  a  Balance  Sheet  is  prepared, 
the  contingent  habihty  due  to  discounted  notes  would  be  shown  as 
follows: 

Notes  Receivable $16,500.00 

Less  discounted  notes  not  yet  due 9,500.00      $7,000.00 

(3)  If  the  maker  redeems  his  note  at  maturity,  our  contingent  lia- 
bility disappears,  a  fact  which  is  clearly  expressed  by  means  of  the  fol- 
lowing entry: 

Notes  Receivable  Discounted $1,000.00 

Notes  Receivable $1,000.00 

We  discussed  indorser's  liabihty,  a  form  of  contingent  hability,  on 
page  246.  Other  contingent  habilities  are  met  with  in  business,  but 
these  cannot  be  discussed  in  this  text. 


432  BOOKKEEPING  AND  ACCOUNTING 

m.  PROTEST  AND  DISHONOR 

When  the  maker  of  a  promissory  note  fails  to  meet  his  obligation  at 
maturity,  the  note  is  said  to  be  dishonored.  It  is  quite  customary  to 
draw  up  a  legal  document  reciting  the  fact  that  the  note  was  duly  pre- 
sented at  maturity,  and  that  payment  was  not  made.  This  statement 
is  technically  known  as  protest.  Thus,  a  note  may  be  both  dishonored 
and  protested. 

(1)  We  already  know  that  when  a  note  is  received  from  a  customer, 
an  entry  of  the  following  form  is  in  order : 

Notes  Receivable $1,000.00 

Customer $1,000.00 

(2)  When  this  note  is  dishonored,  it  is  sometimes  deemed  desirable 
to  take  it  from  the  Notes  Receivable  account  and  put  it  into  a  special 
account,  a  step  which  is  accompHshed  by  means  of  the  following  entry: 

Dishonored  Notes  Receivable $1,000.00 

Notes  Receivable $1,000.00 

(3)  As  some  expense  is  usually  incurred  in  connection  with  dishonor 
and  protest,  the  following  entry  records  the  usual  situation: 

(a)  For  the  protest  fees: 

Customer $1.50 

Cash $1.50 

(6)  For  the  note: 

Protested  Notes  Receivable $1,000.00 

Notes  Receivable $1,000.00 

Sometimes  an  entry  is  made  whereby  the  note  and  the  protest  fees  are 
both  charged  to  the  Protested  Notes  account,  thus: 

Protested  Notes  Receivable $1,001.50 

Notes  Receivable $1,000.00 

Cash 1.50 

(4)  If  a  note  which  had  previously  been  discounted  by  us  was  pro- 
tested by  the  bank  at  which  it  was  discounted,  the  result  would  be  that 
the  bank  would  deduct  from  our  cash  account  the  amount  of  the  note 
plus  protest  fees,  a  fact  which  would  be  expressed  in  our  books  by  means 
of  the  following  entry: 

Protested  Notes  Receivable $1,001.50 

Cash $1,001.50 


L 


MISCELLANEOUS  TOPICS 


But  if  we  had  shown  our  contingent  liability  at  the  time  when  the 
note  was  discounted,  the  entry  at  the  time  of  protest  would  be  as  follows: 


(a)  Protested  Notes  Receivable $1,001.50 


Cash 


(6)  Notes  Receivable  Discounted $1,000.00 


Notes  Receivable 


$1,001.50 


$1,000.00 


The  first  of  the  foregoing  entries  was  for  the  purpose  of  setting  up 
the  protested  note  among  our  assets.  The  second  entry  was  made  so 
as  to  remove  the  contingent  liability  because,  having  met  our  con- 
tingent liabiUty,  it  no  longer  existed  as  such. 

Though  such  a  procedure  is  hardly  necessary,  it  may  be  advisable  to 
show  the  entry  for  the  foregoing  transaction  in  the  books  illustrated  in 
Part  III. 

(1)  In  the  Cash  Book,  when  the  bank  charges  the  note,  plus  protest 
fees,  against  our  account: 


Cash  Disbursements 


L.F. 


Acct.  to  be 
Debited. 


Protested  Notes 
Receivable 


Explanation. 


H.  C.  Long's 
note  due  to- 
day 

$1,000.00;  pro- 
test fees 
$1.50 


Accounts 
Payable. 


Dis.  on 
Purchases. 


Net. 


General. 


1,001 


50 


(2)  In  the  Journal 

; 

Accounts 
Payable. 

General. 

L.F. 

L.F. 

General. 

Accounts 

Receiv-  , 

able. 

1,000 

00 

Date 
Notes  Rec.  Discounted 

Notes  Receivable 
Contingent  liability  on  H.  C. 
Long's  note,  due  today,  ex- 
tinguished; note  protested 

1,000 

00 

434  BOOKKEEPING  AND  ACCOUNTING 

Should  the  maker  of  the  note  finally  redeem  his  note,  including  the 
protest  fees,  a  Cash  Book  entry  would  be  made  equivalent  to  the  fol- 
lowing Journal  entry: 

Cash $1,001.50 

Protested  Notes  Receivable $1,001.50 

IV.  RENEWAL  OF  NOTES 

We  know  that  promissory  notes  are  supposed  to  be  met  at  their 
maturity.  It  sometimes  happens,  however,  that  the  maker  of  such 
notes  finds  it  impossible  to  meet  his  obUgation,  and  in  such  cases  he 
may  possibly  arrange  for  the  renewal  of  the  note.  We  shaU  consider 
four  cases: 

A.  The  renewal  of  Our  Note 

Let  us  assume  that  we  keep  the  books  of  Messrs.  Brown  &  Thomas 
and  that  our  $1,000.00  note,  in  favor  of  Thomas  F.  Blaine,  due  today,  is 
renewed  by  us.  At  this  time  it  is  customary  for  us  to  receive  back  the 
old  note  and  to  issue  a  new  one  in  its  stead.     The  entry  is  therefore: 

Notes  Payable $1,000.00 

Notes  Payable $1,000.00 

B.  The  Renewal  of  a  Customer's  Note 

Let  us  assume  that  we  hold  Joseph  K.  Faile's  $2,500.00  note  in  our 
favor  due  today,  and  that  we  renew  it.  In  return  for  the  old  note,  Mr. 
Faile  would  give  us  his  new  note  for  the  same  amount  and  our  entry 
would  then  be: 

Notes  Receivable $2,500.00 

Notes  Receivable $2,500,000 

C.    THE  RENEWAL  OF  OUR  INTEREST-BEARING  NOTE 

Let  us  assume  that  in  Case  A,  above,  our  note  bore  interest,  so  that 
at  maturity  we  were  to  pay  the  face  of  the  note,  $1,000.00,  plus  interest 
of,  say,  $20.00,  and  that  this  note  was  renewed.  The  usual  procedure 
would  be  for  us  to  pay  the  interest  then  due  in  cash,  and  to  issue  a  new 
interest-bearing  note  for  $1,000.00.     The  entries  at  this  time  would  be: 

(1)  Interest  on  Notes $20.00 

Cash $20.00 

(2)  Notes  Payable $1,000.00 

Notes  Payable $1,000.00 


MISCELLANEOUS  TOPICS 


435 


D.  The  Renewal  of  a  Customer's  Interest-bearing  Note 

Assume  that  the  note  in  Case  B,  above,  bore  interest,  and  that  when 
we  renewed  it  for  Mr.  Faile,  interest  amounting  to  $37.50  was  due.  In 
accordance  with  the  usual  procedure  in  such  cases,  Mr.  Faile  will  pay 
us  the  amount  of  interest  earned  in  cash,  and  give  us  a  new  interest- 
bearing  note  to  redeem  the  old  one.  The  entries  for  the  transaction 
are  as  follows: 

(1)  Cash $37.50 

Interest  on  Notes $37.50 

(2)  Notes  Receivable $2,500.00 

Notes  Receivable $2,500.00 


V.  "KITING" 

"  Kiting  '^  is  a  term  applied  to  a  certain  class  of  transactions  which, 
ordinarily,  are  frowned  upon  by  reputable  business  men.  Consider 
these  two  illustrations: 

(a)  Exchanged  checks  with  Samuel  F.  Duncan,  $500.00. 

(6)  Exchanged  my  two-months'  note  with  Samuel  F.  Duncan  for  his  two- 
months'  note,  $500.00. 

Why  such  changes  are  made  cannot  be  entered  into  here.    Sometimes, 
but  very  rarely,  the  motive  may  be  a  legitimate  one. 

The  entries  for  the  foregoing  transactions,  in  om-  books,  would  be  as 
follows: 


(a)  Cash. .  . 
Cash. 


$500.00 

$500.00 

Corresponding  to  this  Journal  entry,  in  actual  practice  there  would 
be  two  Cash  Book  entries,  one  on  the  receipt  side  and  one  on  the  dis- 
bursement side.  Instead  of  posting  the  entries,  they  might  be  checked 
(V)-  If  posted  they  would  be  carried  to  an  Exchange  Check  account, 
which  would  appear  as  follows: 


EXCHANGE  CHECKS 


Date 


S.  F.  Duncan  C.B.  15 


$500 


00 


Date 


S.F.Duncan  C.B.  14 


$50000 


(6)  Accommodation  Notes  Receivable. 
Accommodation  Notes  Payable. 


$500.00 


$500.00 


436  BOOKKEEPING  AND  ACCOUNTING 

The  foregoing  entry,  though  it  correctly  records  the  transaction,  is 
not  frequently  met  with  in  practice.  The  following  is  probably  more 
favored,  although  the  great  majority  of  concerns  indulging  in  this  form 
of  kiting  would  probably  content  themselves  with  an  entry  charging 
Notes  Receivable  account  and  crediting  Notes  Payable  account: 

(1)  Accommodation  Account $500.00 

Notes  Payable $500.00 

(2)  Notes  Receivable $500.00 

Accommodation  Account $500.00 

The  Accommodation  account  would  appear  as  follows: 
ACCOMMODATION  ACCOUNT 


Date 


S.  F.  Duncan  (note)  J27 


$500 


00 


Date 


S.  F.  Duncan  (note)  J27 


$500 


00 


VI.  ACCOUNTS  RECEIVABLE  ASSIGNED 

We  have  already  learned  that  business  men  borrow  money  by  dis- 
counting their  own  notes  and  also  by  discounting  customers'  notes. 
During  comparatively  recent  times  there  has  developed  an  organization 
of  private  bankers  who  lend  money  to  business  men  on  the  security 
of  accounts  receivable.  Some  banks  also  lend  on  such  security,  but  the 
practice  is  usually  associated  with  private  bankers  and  brokers. 

The  procedure,  simply  stated,  is  as  follows:  Brown  and  Jones  are 
in  business;  they  need  money  and  so  discount  their  own  paper  at  their 
bank.  Let  us  assume  that  they  then  need  more  money  than  the  bank  is 
wiUing  to  lend  them.  They  may  secure  an  acconunodation  by  accepting 
an  advance  from  the  private  bankers  before  referred  to  on  the  security 
of  their  "  open  book  accounts,"  that  is,  on  their  accounts  receivable. 
If  the  accoimts  receivable  amount  to  $10,000.00,  it  is  quite  possible 
that  a  private  banker  may  be  wiUing  to  advance  75  or  80%  of  this 
amount.  The  charge  is  usually  higher  than  the  current  interest  rate. 
What  concerns  us  most  in  the  present  connection  is  the  record  which  is 
required  when  Brown  and  Jones  assign  their  account.  When  cash  is 
received  from  the  bankers,  an  entry  of  the  following  form  is  in  order: 

Cash $ 


Loans  Payable $ 

Another  entry  is  in  order  for  the  purpose  of  clearly  showing  just  which 
accounts  have  been  assigned  because  it  must  clearly  be  understood  that 


MISCELLANEOUS  TOPICS  437 

the  accounts  no  longer  belong  to  Messrs.  Brown  &  Jones.  The  fol- 
lowing entry  would  accompHsh  the  desired  purpose: 

Assigned  Accounts  Receivable $ 

Accounts  Receivable $ 

Corresponding  to  this  entry,  the  accounts  in  the  Sales  Ledger  must  be 
removed  to  a  separate  section  comprising  only  such  assigned  accounts, 
though  it  is  sometimes  customary  to  label  the  items  which  have  been 
assigned  by  some  appropriate  symbol,  instead  of  making  the  physical 
transfer. 

When  collections  are  made  from  the  assigned  accounts,  it  is  usual, 
according  to  the  terms  of  the  agreement  between  the  banker  and 
the  borrower,  to  make  an  immediate  remittance  to  the  lender.  Thus, 
let  us  assume  that  $500.00  was  received  from  some  customer  whose 
account  had  been  assigned  and  that  the  amount  so  received  had  been 
entered  in  the  usual  way,  and  then  deposited.  A  check  would  then  be 
drawn  in  favor  of  the  bankers  for  an  amount  representing  their  loan  on 
account  of  these  assigned  accounts,  plus  their  charges.  If  they  had 
advanced  80%,  and  if  their  charges  amounted  to  $7.00,  a  check 
for  $407.00  would  be  drawn  and  entries  of  the  following  form  would 
result: 

(a)  Loans  Payable $400.00 

Interest  on  Loans 7.00 

Cash $407.00 

(6)  Accounts  Receivable $500.00 

Assigned  Accounts  Receivable $500.00 

What  has  been  outHned  above  does  not  cover  the  entire  field  involved 
in  borrowing  on  assigned  accounts,  but  enough  has  been  presented  to 
enable  the  student  to  handle  the  problem.  Other  points,  such  as  the 
legal  relation  between  the  banker  and  the  customer  whose  account  has 
been  assigned,  assignment  with  or  without  notice  to  the  customer 
whose  account  has  been  assigned,  etc.,  must  be  left  for  more  advanced 
study. 

Vn.  C.  O.  D.  SALES 

Retail  stores,  and  to  a  lesser  extent  even  wholesale  dealers,  ship 
goods  to  customers  "  C.  0.  D.''  C.  0.  D.  is  the  commercial  abbrevia- 
tion for  "  collect  on  deUvery  "  or,  as  some  business  men  would  say, 
"  cash  "  on  deUvery.  It  signifies  that  the  goods  are  not  to  be  delivered 
to  the  buyer  unless  he  pays  for  them  at  the  time  of  delivery.    Although 


438 


BOOKKEEPING  AND  ACCOUNTING 


some  bookkeepers  make  no  entry  for  a  C.  O.  D.  sale  until  collection  has 
been  effected,  and  then  treat  it  as  a  cash  sale,  accountants  favor  the 
keeping  of  a  separate  account  by  means  of  which  to  control  such  sales. 
Accordingly,  when  a  sale  of  this  kind  is  made,  the  customer  is  charged 
by  entering  a  debit  to  the  C.  O.  D.  account.  When  payment  has  been 
received  or  the  goods  returned,  the  same  account  is  credited. 

The  following  illustration  of  such  an  account  should  prove  almost 
self-explanatory : 

C.  O.  D. 


19— 

19— 

May^ 

Henry  Brown       S.  B.    7 

$10 

00 

May( 

)  Cash 

C.  B.  10 

$10 

00 

7 

Frank  Pierce         S.  B.  12 

12 

50 

Louis  Williams     S.  B.  13 

8 

00 

^ 

I  Return 

J.    5 

8 

00 

c 

Ernest  K.  Green  S.  B.  18 

14 

25 

i 

)  Cash 

C.  B.  12 

14 

25 

The  student  will  readily  observe  that  there  has  been  no  return  as  yet 
from  the  Frank  Pierce  sale.  Possibly  Frank  Pierce  was  not  in  when  the 
goods  were  dehvered,  or  possibly  his  address  is  out  of  town,  so  that  the 
goods  were  intrusted  to  an  express  company  which  has  not  yet  reported. 
Louis  Williams  returned  the  merchandise  sent  him  for  reasons  which 
may  be  ascertained  by  consulting  the  sales  shp  returned  to  us.  The 
other  two  sales  were  paid  for  as  indicated. 


Vm.  INSTALLMENT  PURCHASES 

Machinery,  sometimes  office  appliances  or  office  furniture,  may  be 
purchased  on  an  installment  payment  plan.  By  installment  payment 
plan  is  meant  that  the  goods  purchased  need  not  be  paid  for  at  once, 
but  in  stipulated  installments,  usually  occurring  at  fixed  intervals. 
It  is  very  frequently  provided  in  such  purchase  agreements  that  the 
ownership  of  the  goods  shall  continue  to  repose  in  the  seller  until  final 
payment  has  been  made.  But  such  a  stipulation  does  not  affect  the 
entries  which  result  as  each  payment  is  made.  The  entry  for  such  pay- 
ments, depending  upon  the  account  to  be  charged,  which  may  be 
Machinery  and  Fixtures,  Office  Furniture,  Office  Fixtures  or  Equip- 
ment, is  of  the  following  form: 


Cash 


MISCELLANEOUS  TOPICS  439 


IX.  LABOR-SAVING  DEVICES 

The  desire  on  the  part  of  the  modern  business  man  to  reduce  to  a 
minimum  the  necessary  detail  involved  in  bookkeeping  has  given  rise 
to  the  labor-saving  devices  presented  in  Part  III  of  this  book.  A 
different  type  of  labor-saving  results  from  the  employment  of  various 
loose-leaf  books  and  forms.  Thus,  for  example,  the  writing  of  a  Sales 
Book  may  be  avoided  by  retaining  carbon  copies  of  the  invoice  and 
employing  such  carbon  copies  as  the  sales  record  from  which  the  total 
of  sales  may  be  obtained  and  from  which  postings  may  be  made  to  the 
various  Ledger  accounts. 

Loose-leaf  Ledgers  also  contribute  somewhat  to  the  reduction  of 
bookkeeping  labor.  Such  loose-leaf  books  consist  essentially  of  a  binder 
into  which  may  be  inserted  and  from  which  may  be  removed,  as  required, 
Ledger  sheets.  The  advantages  of  such  loose-leaf  Ledgers  consist  in  the 
self-indexing  feature,  that  is,  instead  of  maintaining  an  index  to  the 
various  accounts,  as  is  the  case  with  bound  Ledgers,  the  sheets  are 
alphabetically  arranged  so  that  accounts  are  found  in  the  same  way  as 
names  are  located  in  a  telephone  directory.  Moreover,  when  an  entire 
Ledger  sheet  has  been  filled,  a  blank  sheet  may  be  added  without 
the  necessity  of  making  an  actual  transfer,  whereas  in  bound  books  an 
account  which  completely  fills  a  page  may  have  to  be  transferred  to 
some  other  page  far  removed,  and  the  transfer  noted  on  both  pages  as 
well  as  in  the  index. 

For  other  advantages  of  such  loose-leaf  Ledgers,  the  student  is 
advised  to  read  books  deaHng  with  this  special  phase  of  our  subject. 
The  advantages  of  loose-leaf  Ledgers  are  also  in  about  equal  measure 
true  of  so-called  card  Ledgers. 

The  student  should  not  conclude  that  practically  all  labor-saving 
arrangements  for  recording  bookkeeping  consist  of  loose-leaf  devices. 
As  an  example  of  a  saving,  even  when  the  use  of  the  bound  book  is  con- 
tinued, we  may  refer  to  the  Purchase  Register.  This  is  a  book  in  which 
entries  are  made  for  all  purchases  and  corresponds  to  the  Purchase 
Book  described  in  Parts  II  and  III  of  this  text.  By  employing  such  a 
form  as  is  about  to  be  illustrated,  the  bookkeeper  saves  himself  the  work 
of  copying  the  items  shown  on  the  purchase  invoice.  Reference  to 
the  invoice  may  be  made  either  by  number,  where  each  invoice, 
as  it  is  received,  is  given  a  consecutive  number,  or  merely  by  the 
date  on  it. 

A  common  form  of  Purchase  Register,  corresponding  to  the  Pur- 
chase Book  shown  on  page  161,  is  herewith  presented: 
80 


4^ 


BOOKKEEPING  AND  ACCOUNTING 
PURCHASE  REGISTER 


Invoice 
No. 

Date 
Received. 

Date  of 
Invoice. 

creditor. 

Terms. 

Amount. 

101 

19— 
Nov.  2 

19— 
Oct.  30 

Smith  &  Robbins 

On  acct. 

$6,450 

00 

102 

Nov.  15 

Nov.  13 

Collins  &  Co. 

On  acct. 

1,500 

00 

103 

Nov.  20 

Nov.  17 

Smith  &  Robbins 

On  acct. 

1,800 

00 

104 

Nov.  29 

Nov.  27 

Pitman,  Jones  &  Co. 

On  acct. 

1,600 

00 

PART  IX 
BUSINESS  LABORATORY 

The  purpose  of  this  exercise  is  to  afford  the 
student  an  opportunity  to  make  practical  applica- 
tion of  his  knowledge  of  bookkeeping  and  business 
customs. 


BUSINESS  LABORATORY 

The  purpose  of  this  part  of  the  present  book  is  to  furnish  the  student 
an  opportunity  to  combine  his  knowledge  of  theoretical  bookkeeping 
and  accounting  with  his  knowledge  of  business  practice.  Accordingly, 
instead  of  being  presented  with  a  series  of  transactions,  a  concise  narra- 
tive of  business  occurrences,  the  student  will  be  furnished  with  the  papers 
or  documents  which  gave  rise  to  each  transaction,  and,  on  the  basis  of 
such  papers  or  documents,  he  will  be  expected  to  make  the  proper  book 
entries.  In  other  words,  by  aid  of  the  laboratory  system,  an  attempt 
will  be  made  to  bring  actual  business  into  the  Hfe  of  the  student. 

This  portion  of  the  work  consists,  in  part,  of  a  series  of  incoming 
papers.  These  papers  represent  receipts  for  moneys  paid  out  by  our 
business,  invoices  received  for  goods  purchased  by  our  business,  orders 
for  merchandise,  etc. 

The  student  will  also  find  at  his  disposal  the  business  forms  which  he 
is  expected  to  execute  as  a  result  of  the  various  transactions.  For 
example,  when  he  receives  an  order  for  merchandise,  he  is  expected  to 
prepare  an  invoice  corresponding  to  the  goods  actually  shipped  in 
response  to  the  order,  and  then,  on  the  basis  of  this  invoice  or  a  copy  of 
it,  to  make  the  necessary  book  entries.  The  form  of  books  to  be  em- 
ployed is  left  to  the  discretion  of  the  instructor. 

July  1, 19— 

Item  1. — Frank  E.  Mason  has  this  day  engaged  in  the  Flour,  Feed,  Grain, 
Produce  and  General  Merchandising  business  at  45  West  34th  Street,  New 
York,  and  invested  cash,  $5,000.00,  which  was  deposited  in  the  bank. 

The  numbers  of  the  items  correspond,  in  most  cases,  to  incoming 
forms,  which  will  be  found  in  the  packet  labeled  "  Incoming 
Documents." 

The  check  invested  was  drawn  by  Mr.  Mason  on  his  private  bank 
account  and  deposited  in  the  bank. 

All  moneys  and  checks  received  are  to  be  deposited  before  the 
close  of  business  each  day. 

The  student  should  open  a  bank  account,  following  the  procedure 
outlined  in  Part  VI,  page  382. 

In  order  to  enable  the  student  to  sign  for  Mr.  Mason,  let  it  be 

i43 


444  BOOKKEEPING  AND  ACCOUNTING 

assumed  that  proper  legal  authorization,  formulated  in  what  is 
technically  known  as  a  Tpower  of  attorney,  has  been  executed  in 
his  favor.    Accordingly,  the  student  will  sign  as  follows: 

Frank  E.  Mason, 

By . 

(Student  to  insert  his  own  name  here.) 

Atty. 
Have  you  indorsed  the  check?    Have  you  made  out  a  deposit  slip? 
Have  you  had  the  deposit  entered  in  a  pass  book?    Have  you  en- 
tered the  amount  of  deposit  in  the  check  book?    Have  you  en- 
tered the  investment? 
Item  2. — Paid  rent  for  the  month  of  July,  in  advance,  check  1.    Have 
the  rent  bill  receipted.    It  now  becomes  a  rent  receipt.    File 
same. 
Item  S. — Draw  check  2. 
Item  J^. — Draw  check  3. 
/fern  5. — ^Pay  this  bill  by  check. 

July  2 
Item  6. — Record  the  purchase. 

Item  7. — Start  a  Petty  Cash  Fund  by  drawing  a  check  to  the  order  of  Petty 
-Cash  for  $15.00. 

Julys 

Item  8. — ^Enter  this  purchase. 

Item  9. — ^Paid  carfares,  35c. 

July  6 

Item  10. — Make  the  proper  entry. 

Item  11. — Draw  a  check  to  the  order  of  Cash  or  Bearer,  for  $25.00,  for  Mr. 
Mason's  personal  use. 

Item  12. — Bought  three  special  delivery  stamps  and  thirty-five  two-cent 
stamps. 

July? 
Item  IS. — Fill  Mr.  A.  M.  Johnson's  order.    Bill  the  potatoes  at  $5.65  per 
bbl.,  and  the  onions  at  $2.00  per  basket,  terms,  on  acct.    Prepaid  freight  in  cash, 
$2.00. 

Prices  are  usually  determined  by  the  condition  of  the  market,  or  on 
the  basis  of  previous  offers  or  quotations. 

Item  14' — ^Paid  out  of  Petty  Cash,  carfares  and  telephone  message,  25c. 

Julys 

Item  15. — ^Fill  the  order  of  Talbot  &  Sons,  received  today.  The  wheat  is  to 
be  billed  at  $1.00  per  bu.,  the  corn  at  $.96  per  bu,  and  the  flour  at  $6.00  per  bbl., 
terms,  2/10,  n/30.    Prepaid  drayage  on  this  order  by  cheeky  $13.40. 


BUSINESS  LABORATORY  446 

Item  16. — Draw  a  check  to  the  order  of  Payroll  for  $30.00.  Give  $15.00 
to  Lee  Werner,  stenographer,  for  week's  salary,  and  $15.00  to  J.  J.  Doran, 
bookkeeper,  for  week's  salary. 

Item  17. — Paid  from  Petty  Cash,  50c.  for  1  doz.  pencils  and  2  erasers. 

July  9 

Item  18. — Fill  Mr.  Edward  Moyne's  order  of  July  8.  BUI  the  wheat  at 
$1.00  per  bu.,  and  the  com  at  $.96  per  bu.,  terms  2/10,  n/30. 

Item  19. — Fill  Mr.  Button's  order,  received  today.  The  onions  are  to  be 
billed  at  $2.00  per  basket,  terms  on  acct. 

Item  20, — ^Today's  carfares  amount  to  40c. 

July  10 

Item  21.— Give  W.  S.  Bishop  &  Co.  a  30-day  note,  interest  at  6%,  in  full 
payment  of  their  invoice  of  the  3d  inst.,  less  2%  discount. 

Item  22. — Draw  a  check  to  pay  the  sight  draft  drawn  on  you  by  Mr.  Simp- 
eon  for  invoice  of  the  2d  inst. 

Item.  23.— T\^  the  elevator  man  $1.00. 

July  11 

Item  24. — Draw  a  check  to  the  order  of  Petty  Cash  for  $5.50  to  reimburse 
the  Petty  Cash  Fund  for  disbursements  made  to  date. 

(Draw  up  a  petty  cash  requisition,  based  upon  the  form  shown  on 

page  393. 

Do  not  forget  to  journalize  the  transactions  recapitulated  on  the 

requisition.) 
Item  25. — Record  the  purchase. 
Item  26. — Enter  this  purchase.  ^ 
Item  27. — Sold  to  John  Bulwinkel^for  cash,  10  bags  peas  at  $.80  per 

bag,  10  bags  beans  at  $.45  per  bag,  5  crates  white  eggs  at  $.35  a  doz. 

(30  doz.  to  the  crate), 
/fern  28. — Fill  the  order  of  the  Harlem  Supply  House.    Bill  the 

peas  at  $.75  per  bag  and  the  beans  at  $.40  per  bag,  terms,  on  acct. 
Item  29. — ^Paid  carfares  and  telephones,  50c. 

July  13 

Item  30. — Make  the  proper  entry. 

Item  31 . — Record  the  purchase. 

Item  5;^.— Paid  towel  service  bill,  $1.00,  out  of  Petty  Cash. 

July  14 

Item  33. — ^Enter  this  purchase. 
Item  34. — Paid  carfares,  15c. 

*Mr.  Mason  does  not  wish  to  keep  Ledger  accounts  for  Cash  Customers. 


446  BOOKKEEPING  AND  ACCOUNTING 

July  16 

Item  35. — Record  the  purchase. 

Item  36. — Draw  a  check  to  the  order  of  Cash  for  $30.00.  Pay  the  stenog- 
rapher and  bookkeeper  each  $15.00  for  week's  salary. 

Item  37. — Send  a  telegram  to  A.  M.  Johnson,  informing  him  that  we  have 
sent  a  tracer  after  his  order  of  July  7,  which  he  has  not  yet  received;  prepay  the 
charges,  35c. 

July  16 

Item  38. — Fill  Wiesbecker  &  Go's,  order  received  today.  Bill  the  cauli- 
flowers at  $2.50  per  bbl.,  and  the  peppers  at  $2.00  per  bbl.,  terms,  on  acct. 

Item  5P.— Paid  stationery  bill  out  of  Petty  Cash,  $2.45. 

July  17 

Item  Jfi. — Fill  Mr.  Schuster's  order  of  yesterday.  Timothy  is  to  be  billed 
at  $3.00  per  ton,  clover  at  $25.00  per  ton  and  rye  straw  at  $18.00  per  ton,  terms, 
on  acct. 

July  18 

Item  4i- — ^Enter  the  note  and  check  received  from  Talbot  &  Son,  to  balance 
their  account,  allowing  them  discount. 

Item  4^. — Fill  the  order  of  Max  Goldstein,  received  today.  The  onions  are 
to  be  billed  at  $2.00  per  basket,  turkeys  at  $.25  per  lb.,  weight  150  lbs., 
broilers  at  $.27  per  lb.,  weight  45  lbs.,  peppers  at  $2.00  per  bbl.,  and  eggs  at 
$.35  per  doz.     (30  doz.  eggs  to  the  crate),  terms,  on  acct. 

Item  4^. — Carfares  amount  to  35c. 

July  20 

Item  44- — Record  the  purchase. 

Items  45. — Discount  Talbot  &  Son's  note  of  the  18th  at  our  bank  and  get 
credit  for  the  proceeds. 

July  21 

Item  46. — ^Enter  this  purchase. 

July  22 

Item  47. — Draw  a  check  to  the  order  of  Cash  for  $50.00.  Pay  the  stenog- 
rapher and  bookkeeper  week's  salary;  balance  for  Mr.  Mason's  personal  use. 

Item  48. — Fill  Mr.  Bulwinkel's  order  of  yesterday.  Bill  the  peas  at  $.70 
per  bag,  the  peppers  at  $2.00  per  bbl.,  and  the  eggs  at  $.36  per  doz.,  terms,  on 
acct. 

Item  49. — ^Paid  carfares  amounting  to  60c. 

July  23 

Item  5(9.— Fill  the  order  of  Mr.  Chas.  D.  Klock.    Bill  the  peaches  at  $1.75 
per  crate  and  the  huckleberries  at  $.10  per  quart,  terms  on  acct. 
Item.  51. — Paid  spring  water  bill  from  Petty  Cash  $2.00. 
Item  52.—P&id  ice  bill  from  Petty  Cash  $2.20. 


BUSINESS  LABORATORY  447 

Item  53. — Fill  Mr.  Leonardos  order  received  today.  The  potatoes  are  to  be 
billed  at  $3.00  a  bag  and  the  sweet  potatoes  at  $6.00  per  bbl.,  terms,  on  acct. 

Item  54. — Fill  the  order  of  Mr.  Brouch.  Bill  the  pigeons  at  $.50  per  pair, 
the  onions  at  $2.00  per  basket,  and  the  broilers  at  $.28  per  lb.  (they  weigh 
45  lbs.),  terms,  on  acct. 

Item  55. — Discount  my  own  4-mo.  note  for  $1,000.00  at  our  bank,  and  get 
credit  for  the  proceeds. 

July  24 

Item  56. — Fill  Mr.  Somer's  order  received  today.  Bill  the  turkeys  at  $.25 
per  lb.  (they  weigh  150  lbs.),  the  eggs  at  $.28  per  dozen,  the  peaches  at  $1.75 
per  crate  and  the  currants  at  $.07  per  quart,  terms,  on  acct. 

Item  57. — Fill  the  order  of  Mr.  Kurke.  The  eggs  are  to  be  billed  at  $.28 
per  doz.,  the  cheese  at  $.17  per  lb.  (it  weighs  200  lbs.),  and  the  butter  at  $.30 
per  lb.  (it  weighs  300  lbs.),  terms  on  acct. 

Item  58. — Fill  Mr.  Doran's  order  of  yesterday.  Bill  the  huckleberries  at 
$.10  per  quart  and  the  wheat  at  $1.00  per  bu.,  terms,  on  acct. 

Item  59. — Draw  a  check  to  the  order  of  Petty  Cash  to  reimburse  the  Petty 
Cash  Fund  for  disbursements  to  date. 

July  25 

Item  60. — Send  checks  to  the  following,  on  acct. 

W.  S.  Bishop  &  Co $100.00 

Hunter,  Walton  &  Co 250.00 

Greenspan  &  Brenner 50.00 

D.  Finale  &  Co 300.00 

National  Products  Co 1830.49  (biU  $1867.85  less  2%) 

Item  61. — Make  the  proper  record. 
Item  62. — Record  properly. 

Item  63. — Discount  my  own  3-mo.  note  for  $500.00  at  our  bank,  and  get 
credit  for  the  proceeds. 

Item  64. — Mr.  Mason  took  for  private  use  one  tub  butter  weighing  60  lbs., 
at  $.25  per  lb. 

Item  65. — Sold  to  George  Adams  for  cash,  5  bbls.  cauliflowers  at  $2.50  per 
bbl.,  and  100  bags  peas  at  $.70  per  bag. 

Item  66. — Sold  to  Frank  Walsh,  10  crates  white  eggs  at  $.36  per  doz. 
Item  67. — Fill  Mr.  Felix's  order  received  today.    Bill  the  eggs  at  $.36  per 
doz.,  terms,  on  acct. 

(Did  you  deposit  all  checks  received  today?) 

July  27 

Item  ff^.—Fill  the  order  of  Mr.  Braunfels.  Bill  the  eggs  at  $.36  per  do«.; 
terms,  on  acct. 

Item  69. — Paid  carfares,  76c. 


448  BOOKKEEPING  AND  ACCOUNTING 

July  28 

Item  70. — Record  this  return  and  issue  credit  memo. 

Item  71. — Record  note  received  in  full  of  acct. 

Item  72.—F'A\  the  order  of  Talbot  &  Sons.  Bill  the  middling  at  $30.00 
per  ton,  the  wheat  at  $1,00  per  bu.,  the  cornmeal  at  $1.75  per  bu.,  and  the  flour 
at  $6.00  per  bbl.,  terms,  on  acct. 

Item  73. — Indorse  Geo.  J.  Schuster's  note  of  the  28th  over  to  H.  G.  Miles 
&  Co.,  on  acct.     Mr.  Miles  has  agreed  to  accept  it  at  face  value. 

July  29 

Item  74.— Fill  Mr.  Jefferson's  order  of  today.  Bill  the  flour  at  $6.00  per 
bbl.,  terms,  on  acct. 

Item  75. — Paid  carfares  from  Petty  Cash,  30c. 

Item  76. — Draw  a  check  for  $55.00  to  the  order  of  Cash.  Pay  the  stenog- 
rapher and  bookkeeper  their  weekly  salaries;  and  give  $25.00  to  Mr.  Mason 
for  his  personal  use. 

Item  77.— Bought  $5.00  postage  from  Petty  Cash. 

July  30 

Item  78. — Fill  Mr.  Jefferson's  order.  Bill  the  cheese  at  $.17  per  lb.  (it 
weighs  1,800  lbs.),  terms,  on  acct. 

Item  75.— Fill  Mr.  Madison's  order.  Bill  the  butter  at  $.28  per  lb.  (it  weighs 
1,140  lbs.),  and  the  potatoes  at  $3.00  per  bag,  terms,  on  acct. 

Item  80. — Sold  to  Frank  L.  Monroe  for  cash,  10  crates  mixed  eggs  at  $.28  a 
doz.,  and  10  bsk.  onions  at  $2.00  per  bsk. 

July  31  ...     - 

Item  81. — ^Pay  by  check. 

Item  82. — Record  properly. 

Item  53.— Give  Hunter,  Walton  &  Co.  a  30-day  note  for  $300.00,  on  acct. 

Item  84- — Fill  Mr.  Johnson's  order.  Bill  the  cauliflowers  at  $2.50  per  bbl., 
terms,  on  acct. 

Item  85. — Fill  Mr.  Felix's  order.  Bill  the  pigeons  at  $.55  per  pair,  terms, 
on  acct. 

Item  86. — ^Paid  carfares  from  Petty  Cash,  65c. 

Item  87. — Prepare  a  Petty  Cash  requisition  for  disbursements  since  July  24, 
and  draw  a  check  for  the  amount. 

Post  and  take  a  Trial  Balance. 

Close  aU  books  of  original  entry. 

Prepare  a  Statement  of  Assets  and  Liabilities  emplojdng  the  following 

Expense  Inventory,  $9.00. 

Furniture  and  Fixtures  are  now  worth  $160.00. 


BUSINESS  LABORATORY  449 

Merchandise  on  hand  as  follows:  (The  correctness  of  the  quan- 
tities shown  in  the  foregoing  inventory  should  be  carefully 
checked  by  the  student.) 

5  tons  No.  1  Thnothy  @  $24.00 

5  tons  Fancy  Light  Clover  Mixed  @    21.00 

50  bags  L.  I.  Potatoes  @      2.25 

400  bu.  Wheat  (Sept.)  @        .95 

100  bu.  Corn  c.  i.  f.  @       .91 

5  bags  Beans  @        .60 

70  boxes  Cheese  (2800  lbs.)  @        .15 

15  tubs  Butter  (900  lbs.)  @       .28 

100  bbls.  Flour  @     5.40 

20  crates  Eggs  Mixed  (600  doz.)  @        .26 

10  crates  Eggs  White  (300  doz.)  @       .23 

Prepare  an  Income  and  Profit  and  Loss  Statement 
Close  the  books. 


INDEX 


Accommodation  Account,  436 
Account:  Accommodation,  436;  Ac- 
counts Payable,  202;  Accounts  Re- 
ceivable, 196;  Bad  Debts,  247; 
Cash,  4;  Consignment  Inward,  103; 
Consignment  Sales,  105;  Control- 
ling, 197;  Dishonored  Notes  Receiv- 
able, 432;  Drawing,  244;  Expense,  11; 
Expense  Inventory,  92,  93;  Mer- 
chandise, 6;  Merchandise  Inven- 
tory, 74;  Merchandise,  modern,  73 
Notes  Receivable  Discounted,  431 
Proprietor's,  13;  Purchases,  74 
Sales,  74;  Shipment  Sales,  105 
Subscriptions,  287;  "  T,"  6 
Account  Sales,  104 

Accounting:     corporation,    279;     part- 
nership, 227 
Accounts,  108:    balancing  of,  83,  120; 

closing  closed,  87;   titles  of,  115 
Accounts  Payable  Account,  202 
Accounts  Payable,  posting,  202,  203,  205 
Accounts  Receivable  Account,  196 
Accounts    Receivable:     assigned,    436; 

posting,  197-200;   schedule  of,  233 
Addition  lines,  85 

Admission  of  new  partner,  263,  271 
Advanced  Bookkeeping,  183,  220 
Analyzing  accounts,  26 
Articles    of    Copartnership,    227,    270: 

analysis  of,  229 
Assets  and  Liabilities,  Statement  of,  53, 
54 

Bad  Debts,  328,  330 

Bad  Debts  Account,  247 

Bad  Debts:  Reserve  for,  332;  vs.  Re- 
serve for  Bad  Debts,  332 

Bad  will,  311 

Balance  Sheet,  207,  221 :  condensed,  347 
See  also  Forms 

Balancing  accounts,  83,  120 

Balancing  the  Check  Book,  388 

Balancing  the  Pass  Book,  389 

Bank  accounts,  382 

Bank  balance  overdrawn,  388 

Bill,  363 

BiU  Books,  394,  396 

Bill  of  Lading,  379 

Bookkeeping,  3:  advanced,  183,  220; 
corporation,  279;  double  entry,  6; 
intermediate,  155;  partnership,  227 


Books,  closing  the,  82,  88^  119 
Book  value,  313 
Bradstreet's,  363 
Building  contracts,  429 
Business  customs,  361 
Business  Laboratory,  441 
Business  practice,  361 

Capital:  authorized,  285;  net,  322 

Cash  Book,  164 

Cash,  Petty,  392 

Cash,  Sales,  172 

Certificate  of  Incorporation,  281,  351 

Certificate  of  Stock,  322 

Charge,  20 

Checking,  168 

Check  Book,  balancing  of,  388 

Check  mark  (y),  168 

Checks,  drawing  of,  388 

"  Close  "  corporation,  327 

Closing  closed  accounts,  87 

Closing  the  books,  82,  88,  119 

C.O.D.,  437:  Sales,  437 

Columnar  Books,  220 

Columns,  special,  in  books  of  original 
entry,  183 

Common  Capital  Stock,  322 

Common  carrier,  378 

Common  Stock,  323 

Compound  entries,  46 

Condition  of  the  business,  53,  119 

Consignee,  378 

Consignment  Inward  Account,  103 

Consignment  Outward,  105 

Consignment  Sales  Account,  105 

Consignments,  102 

Consignor,  379 

Contingent  hability,  63n,  66,  246,  4&i 

Contracts,  building,  429 

Controlling  Accounts,  196,  220 

Copartnership,  Articles  of,  227,  270 

Corporation:  accounting,  279;  book- 
keeping, 279;  books,  284;  "close," 
327;  organization  of,  280 

Corporations:  advantages,  279;  dis- 
advantages, 279;  dissolution  of,  338; 
opening  entries,  286 

Cost  of  goods  sold,  77,  79 

Cost  statistics,  214 

Credit  agencies,  363 

Credit  balances  analyzed,  222 

Cumulative  Preferred  Stock,  323 


451 


452 


INDEX 


Currency  Memorandum,  383 
Currency  Requisition,  383 

Dating,  365 

Day  Book,  35 

Day  Book-Journal,  35 

Debit  balances  analyzed,  221 

Deficit,  341 

Delivery  of  goods,  377 

Departmental  columns  in  Sales  Book,  192 

Depreciation,  328:   machinery,  330 

Discount,  68:  earned,  235;  on  Notes,  63, 

176;    on  Notes,  Journal  entries,  65; 

on  Purchases,  56;  on  Sales,  60 
Dishonor,  432 
Dishonored  Notes  Receivable  Account, 

432 
Dividends,  322,  335 
Division  of  accountjs,  6n 
Division  of  the  Merchandise  Account, 

120 
Doublft  entry,  109:  bookkeeping,  6 
Draft,^399:  sight,  101,  102,  399 
Drawing  account,  244 
Drawing  checks,  388 
Dun's,  363 

Entry:  double,  109;  original,  36;  single, 
413 

Entries,  compound,  46 

Errors  in  Trial  Balance,  118 

Expense:  Account,  11;  Inventory  Ac- 
count, 92,  93;  memorandum,  248; 
requisition,  248 

Extras  (on  contracts),  430 

Fees,  protest,  432 

Fetter,  Prof.  Frank  A.,  quoted,  11 

Filing,  373 

Filling  orders,  363 

Forms:  Balance  Sheet,  207;  Bank 
Statement,  391;  Bill  Book,  397,  398, 
399;  Cash  Book,  165,  166,  167,  168, 
170,  171,  184,  187,  189,  198,  203, 
238;  Cash  Book— Single  Entry, 
418,  419;  Check  Book,  386;  Checks, 
377;  Currency  Memorandum,  383; 
Debit  and  Credit  Analysis,  10,  69; 
Deposit  Slip,  385;  Draft,  399;  Express 
Receipts,  378,  379;  filys,  374;  invoice, 
364,  365,  366,  367;  Journal,  35,  43, 
46,  75,  286;  Order  Form,  361; 
Petty  Cash  Book,  394;  Petty  Cash 
Voucher,  392;  Profit  and  Loss  State- 
ment, 79;  promissory  note,  63,  395, 
396;  proof  of  posting,  421 ;  Purchase 
Book,  161,  162,  195;  Purchase  Regis- 
ter, 440;  receipts,  372,  373;  Remit- 
tances, 375, 376;  Sales  Book,  166, 157, 
158,  191,  193;  Special  Journal,  200, 
205;     Statement,     369,     370,     371; 


Statement  of  Assets  and  Liabilities, 
78,  79;  Stock  Certificate,  285,  327; 
Stock  Certificate  Book,  289;  Stock 
Ledger,  288,  290,  329;  Stockholders' 
Ledger,  329;  Subscription  List,  287; 
Subscription  Record,  287;  Working 
Sheet,  217,  218 

Formulae,  54,  219,  222 

Funds,  Reserve,  334 

Good  Wm,  257 

Imprest  System,  393 

Income  and  Profit  and  Loss  Statement, 

212,  214^221 
Income  Statement,  221 
Indorsement,  63:  in  blank,  64;  in  full,  64 
Indorser's  Hability,  247,  431 
Ink,  red,  53n,  78,  83n 
Installment  Purchases,  438 
Interest,  legal  rate  of,  235 
Interest  on  Partners'  Investment,  250 
Intermediate  bookkeeping,  155,  179 
Interpretation  of  accounts,  221 
Interpreting  accounts,  26 
Intrinsic  value,  313 
Inventory,  final,  94 
Inventories,  77 
Investment:   additional;   net;   original; 

total,  14 
Invoice,  363 
Invoicing,  363 
Issued  Stock,  308 

Journal,  29,  35, 116:  special,  170;  trans- 
fers, 89,  94,  253 

"  Kiting,"  435 

Laboratory,  Business,  441 

Labor-saving  devices,  439 

Ledger,  17,  116:  Stock,  288,  290 

Letter,  form,  375 

Liability:  contingent,  63n,  246,  431; 
indorser's,  431;  limited,  279;  pro- 
prietary, 79 

Lines:  addition,  double,  equal,  single,  85 

Machinery  depreciation,  330 

Maker  (of  note),  395 

Market  value,  313 

Memorandum  sale,  102 

Merchandise  Account,  6:  division  of  the, 

120;  modern,  73 
Merchandise  Inventory  Account,  74 
Miscellaneous  Accounts,  100 
Miscellaneous  corporation  topics,  321- 

324 
Modem  Merchandise  Account,  73 
Motion  picture  screen  device,  7 

Net  capital,  91,  322 
Note  Discount,  63 


INDEX 


453 


Notes,  38,  42:  renewal  of,  434 
Notes  Payable,  39 

Notes  Receivable,  38:  Discounted  Ac- 
count, 431;  invested  by  a  partner,  234 

On  account,  19 
Orders,  361 
Original  entry,  36 

Paper,  single-name,  63 

Parcels  Post,  380 

Parties,  229 

Partnership  accounting,  227 

Partner's  Personal  Account,  234 

Partner's  Salary  Account,  244 

Partnership,  227:  bookkeeping,  227; 
closing  entries,  249;  dissolution  of, 
256;  opening  entries,  231;  routine 
entries,  243 

Par  value,  313 

Pass  Book,  384:  balancing  of,  389 

Payee,  395 

Payments  on  account  of  contract,  430 

Pay  Rolls,  380 

Personal  account,  234 

Petty  Cash,  392 

Petty  Cashier's  Voucher,  393 

Posting,  33 

Posting  totals,  184,  187,  189 

Preferred  Capital  Stock,  322 

Preferred  Cumulative  Stock,  323 

Preferred  Stock,  323 

Proceeds  of  sales,  80 

Profit  and  Loss  Statement,  51 

Progress  of  the  business,  51,  119 

Proof  of  Posting,  419 

Proprietary  liabihty,  79 

Proprietor,  charged  for  merchandise,  172 

Proprietor's  Account,  13 

Protest,  432:  fees,  432 

Protested  Notes  Receivable,  432 

Purchase  Book,  161 

Purchase  Discount,  56,  57 

Purchase  Register,  439 

Purchases  Account,  74 

Purchases:  installment,  438;  net,  80 

Receipts,  368,  371 

ReconciUation  statement,  390 

Red  ink,  53n,  78,  83n 

Remittances,  375 

Reserve  for  Bad  Debts,  332 

Reserve  Funds,  334 

Reserves,  333 

Returns,  70,  178,  179 

Rules:  for  Cash  Account,  4;  the  cash 
rule,  110;  for  debiting  and  crediting, 
15;  for  debiting  and  crediting  in 
single  entry,  425;  fundamental  rule 
for  double  entry,  9;  substitution 
device,  110;  universal  rule.  111 


Sales:  Account,  74;  book,  155,  156; 
cash,  172;  C.O.D.,  437;  consignment, 
102;  discount,  60,  185;  Journal, 
156;  memorandum,  102;  proceeds  of, 
80 

Schedule,  235:  of  Accoimts  Receivable, 
233 

Shipment  Sales  Account,  105 

Shipments,  102 

Shipping,  377 

Sight  drafts,  102,  400 

Single  entry,  413:  Journal,  417 

Single-name  paper,  63 

Special  Journals,  general  applicability, 
170-179 

Statement:  Income  and  Profit  and  Loss, 
211,  212,  214;  of  Assets  and  Lia- 
biUties,  53,  54;  of  Profit  (Single 
Entry),  422;   Profit  and  Loss,  51 

Statements:  monthly,     369 
See  also  Forms 

Statistics,  cost,  214 

Stock:  Common,  323;  Common  Capital, 
322;  Cumulative  Preferred,  323; 
Issued,  308;  Preferred,  323;  Preferred 
Capital,  322;  transfer  of,  326;  Un- 
issued, 309;  Unsubscribed,  308 

Stock  Certificate,  322 

Stock  Ledger,  288,  290 

Subcontracting,  430 

Subscribers,  287 

Subscriptions  Account,  287 

Substitution  Device,  110 

Subtraction,  Austrian  method  of,  84 

Surplus,  333,  349 


"  T  "  Account,  6n 
"  Terms  "  of  Sale,  363 
Time  transactions,  19,  23,  26 
Transaction,  3 
Transfer  of  stock,  326 
TraveUng  Expenses,  245 
Trial  Balance,  47,  117,  221:  errors,  118; 
of  totals,  17 


Unissued  Stock,  309 
Unsubscribed  Stock,  308 
Unsubscribed  Stock  Account,  290 
"  Usufruct  "  theory,  11 


Valuation  Accounts,  328 
Value:  book,  313;   intrinsic,  313;  mar- 
ket, 313;   par,  313 
Vendees,  342 
Vendors,  342 
Voucher,  390,  392:  of  Petty  Cashier,  393 


Working  Sheet,  217,  218,  221 


(9) 


UNIVERSITY  OF  CALIFORNIA  LIBRARY, 
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THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 

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2CT  tn  1925 

U    8  '^^6    . 

w     tf*  1926 

\y  '926 


SEP  2 


OCT  17  1928 


MAftdS  1 


1925 


''«?J^.t:°o"?4Vte^» 


SEP  29  J930        ^ 


NOV    2  1931 

23JVo/64lJ| 


2r>,/i-7,'25 


iT»-^°.^*"^I'»brary 


J^ 


-u^ 


YC  24990 


077195 


UNIVERSITY  OF  CAUFORNIA  UBRARY 


